If you want to learn how to trade forex you need a very good solid forex trading strategy that you going to rely on. Here on forextradingworldwide.co.za we have plenty of free forex trading strategies to choose from but today i am going to focus on the best solid forex trading strategies.
Good solid forex trading strategies are easy to trade with, they give great risk reward ratios, they reveal where to enter a buy or sell trade, where to place your stop loss and how to calculate your price objective. And most importantly, they are easy to follow.
Forex trading strategies doesn’t have to be complicated at all. It don’t matter weather you’re a scalper, a day trader, swing trader, or you’re a stock trader, future, options, etc… you need a good reliable trading strategy or strategies to trade with and you can trust these following strategies to do the job.
1. Support and resistance level strategy
The support and resistance strategy is a profitable yet simple trading strategy that is easy to understand, even for absolute beginners. For the best possible results, it is important that you apply this strategy on the bigger time frames such as the daily and weekly chart.
A support level is where buyers are strong enough to reverse a down trend. For example, If a price has been in a downtrend for a while and then hit a certain level where it can no longer continue to go down and reverse back up, that level where it reverses is called a support level.
What is a resistance level
A resistance level is the opposite of a support level: a level where sellers are strong enough to reverse the uptrend. If a market price has been going up for a while and gets to a point where it can’t continue to go up and reverse from there, that level is called a resistance level.
How to trade support and resistance levels?
1. For starters, look for obvious resistance levels on your chart and draw a vertical line just like I did on the charts above.
2. When you see price heading down to a support level and touch that support line, there’s a likely chance that the market price may bounce up from the support level and go up. so you can either place a buy trader as soon as the price touches the vertical line or you can wait for a reversal candlestick to confirm your buy trade.
3. Place your protective stop loss few pips below the support level.
4. Use previous swing high as your take profit target level.
- Look for obvious resistance levels on your chart and draw a vertical line.
- When you see price heading up to a resistance level and touched the vertical line, there’s a likely chance that the market might reverse and go down from the resistance level. So you can either place a buy trader as soon as the price touches the vertical line or you can wait for a reversal candlestick to confirm your sell trade.
- Place your stop loss few pips above the resistance level.
- Use previous swing low as your take profit target level.
There is still more to learn about support and resistance levels/zones like true and false breakouts, so make sure you check this article here
2. Trendline strategies
Almost every trader knows about trendlines but a lot of traders still don’t understand how to draw a strong high probability trendline. Strong trendlines can make the difference between great profits and great losses. Trendlines tend to be more reliable on the bigger time frame’s such as the, daily and weekly charts.
The trendline forex trading strategy uses nothing but pure price action. The trendline forex strategy allows you to trade forex without lagging or leading indicators, just pure price action.
I have written a guide on how to draw and trade the trendlines the right way but here’s my little guide on how to find and draw the best trend lines in forex.
There are two types of trendline: falling/ descending trendline and rising/ ascending trendline.
The first step on drawing trendline is to identity the market trend. An uptrend market simply tells you that the market is up and you must only look to place buy trades while a downward trendline tells you that the trend is down and you should look for sell signals.
How to draw ascending trendline
An upward trendline is an ascending diagonal line drawn below the market price using a minimum of 2 troughs.
Once you have identified a minimum of two peaks, connect those peaks with a line and wait for the price to rally back down for the 3rd time. Just like I did on the picture below.
The gbpnzd chart above shows an example of a strong upward sloping trend line with 4 touching points evenly distributed across the rising line
Once you have drawn your trandline, the next step is to wait for the price to touch and close above the ascending trendline.
Place your buy as soon as the candle closes above the trendline.
Place your protective stop loss few pips below the candlestick that touches the trendline
Take profit target
For take profit, you can use the previous high as your take profit.
Falling/ descending trendline
First you need to make sure that the trend is down.
To draw descending trendline, you need a minimum of 2 peaks.
4. Wait for the price to rally back up for the 3rd time.
5. The candlestick that touches the descending line must touch and close below the trendlline. When that happen, immediately place a sell trade.
Place your stop few pips above the candlestick that touches the trendline.
For take profit target. You can use the previous swing low as your take profit or you can use risk-to reward ratio at least 1:3 (i.e risking 100 pips, winning 300 pips).
For more information on the trendline strategy, check this Artie here
2.2 Trendline channels
Trend Channels are based on trendline strategy. Trend channels are very easy to use because they tell you exactly where to get in and get out of a trade. If channels are used properly they can make you a lot of money in a short space of time.
What is a trend channel
Trend channels are best described as two descending or ascending lines that are parallel to each other. There are two types of trend channels
Ascending trend channel..
Ascending trend channel is made up of 2 higher highs and 2 high lows as you can see from the example chart below.
How to draw ascending channel
To draw ascending trend channel you will need 2 minimum of higher highs and a minimum of two higher lows.
Descending trend channel
A descending channel is made from two lower highs and two lower lows. To draw descending you need a minimum of two lower highs and two Lowe lows.
How to trade descending channel
Once you have drawn your channel, wait for the market price to touch your upper trendline for the 3rd time to sell or wait for the market price to touch your lower trendline to buy.
For a buy trade, the price must touch your low trendline and close above it.
For a sell trade, the market price must touch the upper trendline and close below it.
For sop loss, you can place your stop loss few pips outside the channel or just few pips away from the candlestick that touches the channel for both buy and sell.
If you buy or sell on the other side of the trend channel, the other side can be used as a take profit target. For more on trendline channels, check this article here
3. Trading Patterns
Here is the list of most reliable patterns i am going to talk about
- Ascending triangle
- Descending triangle pattern
- Double top/bottom pattern
- Head and shoulders pattern
Symmetrical, ascending, and descendingdescending are called triangle patterns
3.1. Symmetrical triangle pattern
Symmetrical triangle pattern is formed by a series of highs that are lower than the preceding high and a series of lows that are higher than the preceding low.
Basically, the slope of the Price’s highs and the slop of Price’s low converge together to a point where it looks like a triangle. Hence called triangle patterns. The chart below is an example of a symmetrical pattern.
3.2. Ascending triangle pattern
Although in most cases the price is expected to break the horizontal resistance line, price can break either way.
Sometimes the price fail to breaking the horizontal resistance line and break the rising line. Therefore, it doesn’t matter which line the price will break, the only thing that matters is the breakout.
3.3. Descending triangle pattern
This triangle pattern is the opposite of ascending triangle pattern- It looks like ascending triangle, except that ascending triangle has a horizontal resistance line and a diagonal support line.
On this pattern, the price is expected to break the horizontal support line. However, the price can break either way
To learn how to draw and trade these triangle patterns, check this tutorial here
Head and shoulders pattern
head and shoulders pattern is a trend reversal pattern that is formed at the end of an uptrend or downtrend and signal the end of a trend.
This pattern is formed by a left peak called a shoulder, a higher peak called a head , and a right peak called shoulder that is formed almost at the same level as the left shoulder.
There are two types of head and shoulders pattern: a head and shoulders top and head and shoulder bottom also know as an inverse head and shoulders
3.4 Head and shoulders top
Head and shoulders bottom
To learn more about head and shoulders, check this tutorial here
Double top and double bottom patterns
Double top and double bottom patterns are a reversal patterns that are found or formed at the end of an uptrend or downtrend and signal the end of the trend.
There are two types of these patterns: double top and double bottom.
3.5 Double top
A double top is a bearish reversal pattern that is formed at the top on an up trend and it indicates a downtrend movement or the end of an uptrend.
This pattern has 2 tops at about the same level.
The first top is formed when the market price rise up to hit a certain level, then reverse in the opposite direction until it hit a certain level again where it can’t continue to go down. That level is called a necklice.
From the neckline, the price retrace back up to re-test the same level again, but price fail to break the level again, from then price drop
Everything you just read about double top pattern is the opposite of the double bottom.
A double bottom is a bullish reversal pattern that is formed at the bottom on a down trend and it indicates the end of an downtrend.
This pattern has 2 bottoms at about the same level.
The first bottom is formed when the market price fall down to a certain level, then reverse in the opposite direction until it hit a certain level again where it can’t continue to go up. That level is called a necklice.
I have written an article to explain how to draw and trade both double tostop and double bottom here
Why these pattern are the best
I like these patterns simple because they are very easy to trade with, they reveal where to enter a buy or sell trade, where to place your stop loss and how to calculate your price objective.
Other forex trading strategies
Here are other forex trading strategies that I share here on forextradingworldwide.co.za
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