Four of the Best Forex Trading Strategies

FXOpen

Navigating the world of forex trading can be a challenging endeavour. Success often hinges on the right strategy, and this article aims to demystify some of the best forex trading strategies across various market conditions. Read on to find tailored approaches for trend, range, scalping, and news trading.

For the best understanding of how they work, consider following along with FXOpen’s free TickTrader platform. There, you’ll find the charts and trading tools necessary to execute these strategies successfully.

Trend Trading Strategy – Keltner Channel Breakout

For traders who favour trend trading, the Keltner Channel breakout strategy stands out as one of the best forex day trading strategies. This strategy seeks to identify and exploit strong trending movements in currency pairs. The Keltner Channels serve as a volatility indicator that helps traders assess the strength of the price action. A breakout above or below these channels is often seen as a strong signal that the existing trend has the momentum to continue.

This Keltner Channel breakout strategy employs Keltner Channels with standard settings, except for a multiplier set to 1. In essence, traders often look for an existing trend indicated by higher highs and higher lows for a bullish trend or lower highs and lower lows for a bearish trend. The next step is to observe when the price breaks above or below the Keltner Channel.

Entry

  • Traders typically enter the trade on a close above the Keltner Channel for a bullish trend or below it for a bearish trend.

Stop Loss

  • A stop loss may be placed either above or below a nearby swing point.
  • Alternatively, traders often set it beyond the opposite side of the Keltner Channel.

Take Profit

  • Profits are often taken at significant support or resistance levels.
  • Traders also consider areas where they expect the trend to potentially reverse as profit-taking points.

Range Trading Strategy – Stochastic RSI Reversal

In contrast to trend-based approaches, the Stochastic RSI reversal strategy is a simple trading strategy ideal for range-bound markets. The setup involves employing the Stochastic RSI with its standard settings, looking for scenarios where the market moves between well-defined support and resistance levels.

Traders often focus on a range-bound market characterised by consistent bounces between support and resistance levels. The Stochastic RSI indicator is used to identify overbought or oversold conditions.

Entry

  • Traders typically wait for the price to touch either the resistance or support level, while the Stochastic RSI is either above 80 (overbought) or below 20 (oversold) respectively.
  • Entry is often considered when the Stochastic RSI crosses back below 80 or above 20, and they may enter at the close of that candle.

Stop Loss

  • Stop losses are usually set just beyond the support or resistance level to minimise risk.

Take Profit

  • Profits are commonly taken at the opposing support or resistance level, essentially capturing the width of the trading range.

The Stochastic RSI reversal strategy takes advantage of the market's tendency to revert to the mean within a defined range. The use of Stochastic RSI aims to confirm the momentum of the price action as it reaches the extreme points within the range, giving traders a higher probability of a successful trade.

Scalping Trading Strategy – Hull Moving Average Crossover

The Hull Moving Average (HMA) crossover strategy is an efficient method for traders interested in short-term opportunities. It involves using two HMAs: one set to a period of 9 and another to a period of 21.

The HMA is preferred over traditional moving averages as it offers smoother results and quicker signals. The choice of periods—9 and 21—is based on the need for a balance between responsiveness and reliability. In a bullish signal, traders look for the HMA(9) to cross above the HMA(21), while in a bearish signal, the HMA(9) should cross below the HMA(21).

Entry

  • For a bullish trend, traders typically enter the trade when the HMA(9) crosses above the HMA(21).
  • In a bearish trend, entry is often made when the HMA(9) crosses below the HMA(21).

Stop Loss

  • Stop losses are commonly set just beyond the nearest swing point.

Take Profit

  • Profits might be taken at a nearby support level for bearish trades or a resistance level for bullish trades.
  • Alternatively, the trade could be closed when the HMAs cross in the opposite direction.

The HMA crossover strategy aims to capitalise on the market's short-term momentum. The selection of two different periods for the HMAs ensures that the strategy is both responsive to price changes and robust enough to filter out market noise, thereby increasing the odds of a successful trade.

News Trading Strategy – Bollinger Band Breakout

When significant news hits the forex market, it can lead to substantial price shifts. The Bollinger Band breakout strategy is one of the best news trading strategies. It’s designed to help traders take advantage of these moves and stands as one of the most effective forex trading strategies for capturing prolonged trends or surges.

The approach hinges on Bollinger Bands, a volatility indicator, and focuses on the significant price moves that often follow news releases. The strategy relies on spotting a large candle that closes outside of the Bollinger Band, which is set to its default parameters.

Entry

  • Traders may choose to enter on the close of the large candle that's broken out of the Bollinger Band, ideally with minimal wicks.
  • Alternatively, some wait for a retracement back to the outer band or the middle line before entering.

Stop Loss

  • Stop losses can either be set at the top or bottom of the large breakout candle.
  • Another option is to place the stop loss on the opposite side of the Bollinger Band line.

Take Profit

  • Traders often target major support or resistance levels to take profits.
  • Other potential exit points are areas deemed likely for price reversals.

The Bollinger Band breakout strategy aims to capitalise on the increased volatility caused by significant news releases. It allows traders to get involved early in potentially extended price movements, whether bullish or bearish, thus maximising the chance of an effective trade.

The Bottom Line

Armed with these targeted strategies, traders are better equipped to navigate the intricacies of forex trading across various market conditions. To put these techniques into practice and tap into advanced trading tools, consider taking the next step to open an FXOpen account. Happy trading!

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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