7 best forex trading strategies that work

Find out the best forex trading strategies that really work and pick from 7 of the most popular forex strategies.
By:
Updated: Jan 10, 2024
Listen

This guide picks out 7 of the best forex trading strategies. Our forex experts have combined their knowledge of forex trading to identify these trading strategies, and explained how each one works.

Summary of the best forex trading strategies

Copy link to section
  • Arbitrage
  • MACD
  • Martingale
  • News trading
  • Scalping
  • Stop-loss
  • EMA pullbacks

The best forex strategies, explained

Copy link to section

Arbitrage

Copy link to section

Forex arbitrage involves taking advantage of trading opportunities generated by price inefficiencies across different brokers. By rapidly buying and selling a currency on multiple exchanges, you can generate a profit based on the different spreads available.

For example, if you can buy a forex pair on one exchange and then sell it immediately on another at a higher price, that’s arbitrage. It involves rapid, near simultaneous trading on the two exchanges, and the amount of profit on each trade might be small.

To carry out this strategy, it’s necessary to be able to access real-time price quotes and act immediately on them. There is, in theory, less risk with an arbitrage strategy because the respective merit of the currency pair is irrelevant, the opportunity is based exclusively on a gap between prices.

Countertrend

Copy link to section

A countertrend strategy means placing trades against the current market trend. It is designed to take advantage of expected market reversals.

Countertrend trading can be a useful short term strategy, where you make moves based on the idea that a current trend might meet support or resistance in the near future, and briefly rebound or fall back.

MACD

Copy link to section

The MACD Combo strategy uses two Simple Moving Averages (SMA) and one MACD (Moving average convergence divergence) technical analysis indicators, in their default settings (12,26,9). One SMA will be 50 periods and the other 100 periods. The MACD Combo is intended for time frames from H1 to D1.

The Forex MACD strategy can help you enter the direction of the trend in good time and with fairly objective entry and exit rules. However, it is good to use this strategy on those currency pairs that show more trend periods and make good moves such as the four major pairs (EUR/USD, GBP/USD, USD/JPY, USD/CHF). In addition, checking the momentum with indicators such as ADX can help improve the success rate of this strategy.

Martingale

Copy link to section

The martingale was introduced by the French mathematician Paul Pierre Levy and became very popular in the 18th century in the betting world. The strategy is simply based on doubling down after a losing trade. Most of the theoretical work on the martingale was done by Joseph Leo Doob, an American mathematician interested in achieving a 100% return on this strategy.

The mechanics of the system involve an initial bet and from then on, every time the bet loses, you double the bet until you have a winning operation. Having been successively doubling after losing trades, the result of the winning trade recovers all previous losses and adds the profit of the initial bet.

The strategy is based on the premise that only one winning trade is necessary to accumulate net profit. In theory, with infinite money and no trading limits, the martingale strategy would always work. In reality, it’s high risk because eventually you will reach the limit of your capital or the maximum trade, and you could potentially lose everything.

One of the reasons why the martingale strategy is so popular in the forex market relative to the stock market is that, unlike the stock market, it is unlikely that the exchange rate of a currency pair will reach zero. Publicly traded companies can go bankrupt, countries can’t (with a few exceptions, of course). There will be times when a currency devalues, but even in cases where there is a sharp decline, the value of the currency does not go to zero, so the risk of a complete loss is limited to some extent.

Trading the news

Copy link to section

The publication of news can cause high volatility in forex and large movements in the price of a currency pair, a fact seen as a great opportunity by many and as a high-risk situation for the to walk away for many others.

Everyone can have their own strategy for trading the news, two of the most popular and widely used trading techniques are known as straddles the news and trade the number. The fundamental, and important, difference between the two is that the straddle strategy does not take into account the result of the news itself, while trade the number waits for the result of the news to take action.

Straddles the news

A easy strategy to set up and execute but probably the riskiest news trading technique. To straddle, find out when an important news item is published, connect your platform moments before and place a pending order to go long a few pips above the current trading price and another a few pips below to go short. If the outcome of the news creates enough volatility your orders will be automatically executed as well as your stop loss and take profit levels. The idea is that if the market moves up on the news your pending buy order is the one filled and you cancel your pending sell order.

Trade the number

This news trading strategy is less risky than the straddle. As its name suggests, the strategy consists of knowing the result of the news and entering the market in the direction indicated by said result.

The first thing to do with this technique is to know the importance of the news as well as its meaning and forecasts. The second thing is to wait to know the result of the news, value the deviation with the forecast and operate according to this deviation. If the result of the news is in accordance with what was expected, there will not be an exaggerated movement, if the result has deviated quite a bit from the expected data and it is a good data, it will be necessary to buy the currency of that country, if on the contrary the data has been bad and surprising (deviated from expectations) will have to sell the currency of that country.

Scalping

Copy link to section

The scalping strategy is an intraday trading style. Scalping the market is simply taking advantage of small changes in the price of an asset, usually over a very short period of time.

This is a very popular style among traders as it creates multiple opportunities in a single day. It should be noted that this popularity is mainly due to the fact that it is very likely to obtain market entry signals. During the scalping process, profits greater than 10 pips and losses greater than 7 pips per trade (including the spread) are generally not expected. It is usual for this technique to be carried out with high volumes, which is why many traders do not follow the common rule of 2% risk per trade, but use much larger amounts during their FX scalping sessions.

When selecting currency pairs for your scalping strategy, it is very important to choose volatile instruments where you are most likely to see fluctuations. If you choose pairs with low intraday volatility, you may have to wait several minutes (or hours) for their price to change.

It is worth mentioning that volatility should not be the only factor in choosing a currency pair. You should also pay attention to those instruments with low transaction costs or in other words, the lowest spreads. As a scalper, you will find that the spread takes between 10% and 30% of your income, so you will obviously want this value to be as low as possible.

“No hands” stop loss strategy

Copy link to section

The idea behind this method is quite simple: set a stop loss and let the market go its way. Let’s see what the advantages are.

The “set and forget” or “no hands” stop loss trading strategy prevents stop losses from triggering too soon by setting them at a safe distance. This method also serves to take the emotion out of trading as you don’t have to intervene after setting it up. As soon as you open your position and set your stop loss, you just have to let the market take its course. Another advantage of this strategy is that it is easy to implement and only requires one action at a time.

However, “set and forget” has its drawbacks. The biggest of them all (and often the most expensive) is the risk present from beginning to end of the position. You must not forget that, at all times, there is the possibility of losing money. The second disadvantage is that you may be tempted to modify the stop loss. This can be a problem that can attack even the most experienced traders. Therefore, “set and forget” may not be the best Forex stop loss strategy, although it does have advantages that deserve your attention.

Trade pullbacks

Copy link to section

This strategy is based on identifying a trend, waiting for the breakout of the trend line and entering after the first pullback that we will identify using a 10-period EMA.

To do this, draw a line that joins the minimums if it is an upward trend or the maximums if we are facing a downward trend. This trend line will be our support/resistance that will need to be broken. The trend line will be broken up if we are in a downtrend and down if we are in an uptrend. This breakout must be strong and wide to ensure as much as possible that it is not a false breakout.

Once the breakout has occurred, the optimal time to open the trade is after the first pullback. We will identify the pullback when the price reaches the 10 EMA. At this point we will enter in the direction of the breakout.

Best place to trade these strategies

Copy link to section

Sort by:

1
Min. Deposit
$ 100
Best offer
User Score
9.9
Join the Social Trading revolution. Connect with other traders, discuss trading strategies, and use our patented CopyTrader
eToro is the world’s leading social trading platform, offering a wide array of tools to invest in the capital markets
Largest number of currency pairs to trade
Start Trading
Payment Methods:
Bank Transfer, Debit Card, PayPal, Credit Card, Wire Transfer
Full Regulations:
CySEC, FCA

51% of retail CFD accounts lose money. Your capital is at risk.

2
Min. Deposit
$ 100
Best offer
User Score
9.9
Trade +2000 CFDs on Shares, Forex, Indices, Crypto, Options, Commodities & more
Unlimited risk-free Demo Account
0 commissions & attractive spreads
Start Trading
Payment Methods:
Bank Transfer, Debit Card, PayPal, Credit Card, Visa, Mastercard, American Express, Trustly, Apple Pay, Google Pay, Discover, Bank Transfer: SEPA, Bank Transfer: FPS, skrill
Full Regulations:
ASIC, FCA, FSA, MAS, CySEC #250/14

CFD service. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

3
Min. Deposit
$ 0
Best offer
User Score
8.0
Open a free account in minutes
Go global with fee-free foreign exchange
Finance tracking made simple
Start Trading
Payment Methods:
Debit Card, Credit Card
Full Regulations:

What you must know to use forex trading strategies

Copy link to section

Market opening hours

Copy link to section

Assuming you work from nine to five in the United States, you can trade before or after work. The best strategy for trading any time block is to choose the most active currency pairs during that time. Knowing when the major Forex markets are open will help in choosing the major pairs.

Forex marketOpening hours
New York08.00 – 17.00 EST
Tokyo19.00 – 04.00 EST
Sydney 17.00 – 02.00 EST
London03.00 – 12.00 EST

During the 12:00-2:00am time, the markets in Japan and Europe (open from 2:00am to 11:00am) are in full swing, so part-time traders can pick the major currency pairs. Forex like EUR/JPY or EUR/CHF for major currencies or look for other pairs involving the Hong Kong Dollar (HKD) or Singapore Dollar (SGD) for example. During the 5 pm to midnight time frame, trading the AUD/JPY pair is an available option for this time frame.

How to use stop-loss orders

Copy link to section

Assuming you can only trade for a minimum amount during the day, say an hour, the best strategy may be to let your computer be your “trading partner”. Because the Forex market is so fluid, not having the flexibility to watch the market can leave you with a lot of missed opportunities, so employing a trading program where you can let information technology work for you could be the way to go. best forex trading strategy. Another common strategy is to include setting stop-loss orders so that if the market makes a sudden move against your position, your money is protected.

Price action

Copy link to section

Assuming you show up and sell while you work (10 minutes at a time), one strategy that can be used during these trading periods but can be the use of price action trading. Price action trading can be described as analyzing the technical data or figures of currencies and trading based on what the chart tells you. In its most basic definition, workers can analyze rising bars, which is a bar that has a bar higher or lower than the previous bar, looking down bars, which is a bar with a higher or lower low lower than the previous one.

Up bars indicate an uptrend while down bars indicate a downtrend. Other price action indicators may be inside or outside the bars. Choosing the chart time frame that best suits your schedule availability is the key to success with this strategy.



Sources & references
Risk disclaimer
James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.