Forex Trading Strategy:
The Ultimate Guide (2020 Update)
Practice you want to
master Forex trading?
Well it all starts with having the right strategy!
Trading Forex using price action is simple, stress complimentary, and highly effective.
In this guide I will share my avant-garde Forex trading strategy with yous.
You volition acquire to use powerful toll activeness techniques in a stress complimentary and elementary Forex trading strategy.
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Contents
Chapter i:
My Cost Action Trading Strategy
My Forex trading strategy is based completely on price action: no indicators, no confusing techniques, just pure toll activity!
What is Toll Action Trading?
All price motion in Forex comes from bulls (buyers) and bears (sellers). When GBPUSD moves up it’due south considering there are more bulls than bears and vice versa.
The Forex market (and whatsoever market for that thing) is in a constant land of struggle between bulls and bears.
Cost action trading is almost analysing who currently controls price, bulls or bears, and if they are probable to stay in control.
If your analysis shows that bulls are in control and that they are likely to stay in control, and then you can buy (long).
If information technology shows that bears are in control and that they are likely to stay in control, then y’all tin sell (short).
How do you lot analyse who’due south in command of price?
By using two simple price action techniques.
Back up and Resistance Areas
These are purchase and sell areas yous tin can easily identify and place on your nautical chart. In one case toll hits these areas you know it is likely to stall or reverse completely.
This allows you to buy or sell at the right fourth dimension.
Advanced candlestick assay
This is non that basic doji equals reversal stuff you may have seen elsewhere. Advanced candlestick assay goes much deeper than that and so that you lot have a full understanding of what a chart is telling you lot.
One time you empathise this, ane glance at a chart will tell yous who’s in command of price (bulls or bears) and if you should buy or sell.
These two techniques brand upwards the core of my toll action trading strategy. In fact, those are the only techniques I use to find and trade high probability setups.
My trading strategy differs from most courses you will come across as it is based entirely on Price Action…
- At that place are
NO
indicators. - In that location are
NO
confusing techniques. - There is
NO
stress.
It’due south only about reading price and making smart trading decisions.
Forex Price Action Strategy
My Forex price activity strategy was born in 2005 and has been constantly improved over the last 14 years – this strategy has seen it all.
It has survived major market changes from the financial crisis in 2008 to the Swiss Franc disaster in 2014, to Brexit in 2016. It really has seen information technology all.
My price action strategy works in all market place atmospheric condition.
From trending markets to depression volatility, to ranging, to loftier volatility, it has weathered it all with consistent profits.
Indicator based strategies work well in specific market atmospheric condition. If you lot accept a strategy that works in low volatility markets, it will neglect in high volatility, ranging, or trending marketplace conditions.
Price action adapts, indicators don’t!
Price action doesn’t simply adapt to irresolute market conditions though, it adapts to different pairs, different time frames and, crucially, to unlike traders.
Higher up all,
Price Action keeps your trading unproblematic.
In fact, my Forex trading strategy is so unproblematic that you can trade it from your smartphone. I use this strategy to merchandise on the get – as of 2017 I take over 70% of my trades from my smartphone.
Keep It Simple
My Forex trading strategy was created with simplicity in mind. The most mutual downfall of today’south traders is over complicating their strategy.
We have all seen charts that look like this.
How can you merchandise comfortably using a chart like this?
How can you trade efficiently using a chart similar this?
How can you trade from your smartphone using a chart similar this?
You lot can’t, information technology is also messy.
The core dominion of my price action strategy is to proceed trading elementary. Because
the Forex trading strategies that work best are simple.
The just affair I place on my charts is
support and resistance areas. I utilize these support and resistance areas in conjunction with candlestick analysis to trade Forex.
So what does a clean Forex chart look similar? Much meliorate than the monstrosity above!
This chart is uncluttered, easy to empathise and to navigate, with nil to distract you from analysing toll action.
This manner of trading is quick, efficient, stress-free, and y’all tin can practice it from anywhere, including your smartphone.
So if you want a elementary Forex strategy, keep reading.
Chapter ii:
Support & Resistance Areas
Support and resistance areas show you where to buy and sell, they are a vital role of every traders toolkit, and
information technology is essential that y’all learn how to identify them.
What is Support and Resistance?
Placing support and resistance areas is the most important skill y’all can main in trading.
And placing them is like shooting fish in a barrel.
Support and resistance areas split your chart upward into purchase and sell areas. An expanse that sits above current price is a sell area, any area below current price is a buy area.
Support = Buy Area
The terms buyers and bulls are interchangeable. Back up is a buy area as buyers are found at support.
Resistance = Sell Area
The terms sellers and bears are interchangeable. Resistance is a sell expanse as sellers are found at resistance.
On the GBPUSD chart below, you can run across cost is approaching the blue shaded area at 1.3500. This is a strong resistance (sell) area.
When price approaches a sell area big amounts of sell orders are triggered countering purchase orders. This usually results in toll stalling or even turning around completely for a reversal.
Why does this happen though?
It’south elementary, the market movers similar banks and hedge funds place their orders at areas of support and resistance.
Why Practice Marketplace Movers Place Their Orders At SR?
Good traders don’t randomly place entry orders and promise that they become lucky. They place their entry orders at meaning toll levels. Pregnant levels come in many forms.
- Yearly, monthly, weekly highs or lows.
- Rounded numbers such at 1.0000 and i.0500 (also called psychological levels)
- All time highs or lows.
- Areas in which price has stalled or reversed more once.
In the GBPUSD nautical chart example above, we can run into that price has stalled at the 1.3070 twice (light-green highlights). The next time information technology approaches the level information technology pulls dorsum again and and then again two more times (yellowish highlights).
Why?
Because market movers place their buy orders at the ane.3070 and when toll hits the area the buys trigger causing a reversal.
This happens all the fourth dimension on every Forex pair and in every financial market for that matter.
This is how markets work, buy and sell orders are grouped together in the same general area and when they are hit we come across the impact on price.
Placing Back up and Resistance Areas
There are a lot of indicators out there that claim to give you lot peachy back up and resistance areas.
I have tried them all and I do non observe them reliable.
Support and resistance placements still need to be done by a person. These are my support and resistance areas, simply if you want to trade more pairs you will need to identify them yourself.
A expert Forex trading strategy requires some work!
But don’t worry, it is easy, all you are doing is placing horizontal lines when you spot an surface area with two or more bounces.
I am going to break it down into a pace by stride process for you though. But first, we need to define some rules for support and resistance areas.
Three Rules to Support and Resistance
There are three key rules you need to keep in listen when placing back up and resistance areas.
- Place areas on the body of a candle, the torso is more than of import than the wick.
- The more than recent the bounciness the more of import. Prioritise recent bounces over older bounces.
- Y’all need at least 2 connecting bounces to place a support and resistance surface area. At that place are a few exceptions to this, the most mutual ane being for points which are yearly or all-time highs/lows. When you spot a yr or all-time high/low you tin can place an area there even if it has only once bounce.
Step Past Step Guide to Placing Support and Resistance
Footstep 1:
Select a daily chart and zoom out until you see effectually one year of data. Don’t worry if you see a little more or less than one year, it’s not a big bargain.
Stride 2:
Identify the highest and lowest bounces in the last yr and identify an area at each. Recollect, identify your areas at the bodies, not the wicks and equally these are yearly highs and lows placing them based on a single bounciness is enough.
Pace 3:
Identify support and resistance areas between the first two past connecting areas which have 2 or more bounces.
Yous volition generally discover that in that location are 5-8 back up and resistance areas on virtually charts. If you have more than than eight you lot probably placed also many.
Chapter 3:
Advanced Candlestick Assay
Almost new traders learn a petty bit about candlestick assay.
But most of what they learn is completely useless!
Why?
Well the standard arroyo to candlestick assay is basic pattern recognition, which fails to work in existent trading.
I delve much deeper than that, I look at the story behind the candle and in this chapter I will show you how to practice that likewise.
You lot can’t skip directly to avant-garde candlestick analysis without knowing some basics get-go. If yous don’t know the nuts, that’southward fine, I got you covered!
You lot can read up on the basics here if you lot need to.
The Truth About Candlestick Analysis
When Forex traders first start out they unremarkably larn most candlesticks.
But what they learn is usually useless.
They normally see a listing of “candle patterns” like the i below. Each blueprint has a set in stone definition and that is the simply pregnant it can have.
This is non candlestick analysis, information technology is pattern recognition.
And for a price action trader, it is useless.
Really, it is worse than useless. Thinking almost candles every bit only patterns is counterproductive. It makes you a worse trader, it leads y’all to make massive mistakes.
Why?
Giving a pattern a set up definition leads to tunnel vision. When you see that specific pattern, you assume that something will happen.
Just that is non how candlesticks work.
All candlesticks need to be assessed based on the candlesticks effectually them, and many other factors.
Below is a candlestick blueprint commonly chosen a “spinning top”.
Normally people say that a spinning top ways a reversal is imminent, which tin can be true. However, this same design can too hateful that a continuation is imminent. It can hateful that price is temporarily stalling.
It can mean a lot of unlike things.
Thinking of candles as simple patterns is the wrong fashion to practise things.
Y’all need to await beyond the pattern and read the story of price.
The Story of Price
Every single candle on your chart is telling you a story. When yous combine those candles together, you get the story of price.
The foundation of my Forex trading strategy is reading and understanding the story of toll.
Reading and understanding the story of price is vital in Forex. Information technology is vital because information technology allows you to answer one of the most of import questions in trading…
Who is in control of price?
This question has three possible answers: buyers, sellers, or neither.
Being able to accurately answer this question is vital. If you are about to enter a short trade and yous ask yourself
“Who is in control of toll?” and your respond is “buyers”, well perhaps selling is not a dandy idea.
Allow’south suspension down the story of price.
If y’all wait at the three highlighted candles below, it is easy to conclude that sellers are in control of price.
The candles all closed lower than they opened, they all created new lows beyond the previous candles low and they all had small upper wicks in comparing to the candle body. The small upper wicks indicate that buyers were unable to button cost up by much.
But what does the highlighted candle in the adjacent nautical chart tell us?
It has a brusk upper wick, a small trunk, and a long lower wick. This is what I call an indecision candle.
What’s an Indecision Candle?
Indecision candles occur when neither buyers or sellers tin can gain and maintain control of cost. They are common, just if used in the right fashion, they can be very powerful.
Take a wait at this bullish trend (yellowish highlight), it is a strong trend, there are several bullish candles heading towards an area of resistance. The big bullish candles tell us that during the highlighted menstruation buyers were in complete control of price.
When price hits resistance nosotros get an indecision candle forming (green highlight).
Let’south break this candle down into a story so you understand why it indicates indecision.
Large Upper Wick (Blue Highlight)
A large upper wick shows that buyers tried to continue the bullish trend but failed. Sellers took control of price and pushed information technology down.
Small Bearish Torso (Dark-green Highlight)
The small bearish body shows that sellers were able to close lower than the open up. This is significant because in the iii candles earlier this toll consistently airtight higher than open. This shows us that buyers are losing power.
Small Lower Wick (Blood-red Highlight)
The small lower wick shows united states that sellers were not able to gain much ground either. This tells the states that sellers are not strong enough to turn price around completely. However, they are strong enough to stall farther buyer movement.
All together this indecision candle forming right afterward potent bullish candles suggests that power has shifted from a incomparably bullish (buyer) market to an undecided market. While sellers are not in control, neither are buyers.
Simply in that location is ane more matter we need to look at…
… The indecision candle is forming on top of a resistance area. Let’s looks at this chart once again.
If you remember, in the previous chapter we talked about resistance being a sell area and support beingness a buy area.
And then the image above shows us three strong bullish candles heading into a resistance surface area. And so…
BAM!
Price stalls and we get indecision forming on acme of that surface area.
This tells us that the sell area is working. When price pushed into that area sell orders triggered and buyers could no longer go along up.
That is the story of price for this chart.
And this story gives us a nice little price action trade setup.
Chapter 4:
Setups With My Forex Trading Strategy
Toll action allows you to take many different types of trades, reversals, continuations, range, swing, breakout and scalp trades to name a few.
In my free Forex trading strategy I volition focus on one blazon of setup, the easiest to spot and trade,
reversal.
How to Spot a Reversal Trade
Reversals occur quite often, only if you practice non know what to look for, you cannot trade them.
Reversals are one of the strongest cost action setups, and one of the easiest to trade. And considering they occur so frequently, you can merchandise this setup exclusively and be a assisting trader.
In fact, for years Forex trading strategy focussed on reversals but. However, these days I merchandise more price action setups.
Reversal trades come up in three parts:
- The preceding trend.
- The Indecision candle(southward).
- The reversal tendency.
Let’south intermission down each of these parts.
The Preceding Tendency
A preceding tendency is a strong motility past the bears/bulls heading into an area of back up/resistance.
In the instance above, the preceding trend is a very potent bearish move, indicating that there are a lot of bears in the market and very few bulls. If bulls were potent and then toll would not exist trending down.
The preceding trend shows us that bears (sellers) take potent control of price and they are pushing price downwardly into a back up expanse.
The opposite applies for a bullish preceding tendency which would show bulls (buyers) trending towards resistance, as yous come across below.
A preceding trend can be formed by as little as ane candle. If the candle is strong and covers a lot of price distance, I categorise it as a preceding trend for the purposes of reversal trading.
The example below shows a single candle preceding tend.
Preceding trends are pretty elementary. As long every bit y’all meet a strong move heading into an area of support or resistance, you tin can consider it a preceding trend.
The Indecision Candle(s)
A reversal setup will have one to three indecision candles. The indecision candles need to form on or near to the support and resistance area.
If indecision does non form on or near to the area of support and resistance, it is non a valid reversal setup.
Why does it demand to exist on a support and resistance area?
An indecision candle in a bullish preceding trend indicates that buyers are possibly losing control, and sellers may exist gaining control. In a bearish preceding trend it indicates that sellers are losing control and buyers may exist gaining command.
Even so, an indecision candle does not bespeak that price will reverse with any degree of certainty.
An indecision candle indicates simply one thing…
Indecision!
You lot cannot take a trade based solely on indecision. The image below shows indecision forming between back up and resistance. If you were to enter reversal trades based solely on indecision, information technology wouldn’t piece of work out likewise well…
What almost when a bullish preceding tendency heads into an surface area of resistance (sell expanse) or a bearish tendency into support (buy area) and indecision forms?
Well, and then we go the makings of a high probability reversal setup.
Merely we cannot enter just even so, nosotros need confirmation, which comes in at role three of a reversal setup.
The Reversal Trend
The reversal tendency is the third and most important office of a reversal setup. This is where nosotros brand our turn a profit!
Afterwards a preceding trend stalls at support, and indecision forms, you often come across a reversal trend. The paradigm below shows a bearish reversal tendency forming later on indecision on resistance.
In this instance nosotros saw a transition of power from a bullish preceding trend to a surly reversal trend separated by a stall on resistance.
Where do you enter the trade though? Let’s talk over that in the next chapter.
Chapter v:
Trading Reversal Trades With My Strategy
Yous know what a reversal trade looks like.
You know that you need to enter after indecision and before the reversal tendency.
In this chapter I will show you how to employ my Forex trading strategy to trade reversals profitably.
Don’t worry, entering reversal trades at the right time is a lot easier than you lot may think.
My Forex trading strategy was built on reversal trading. It has at present expanded beyond but reversals, but reversal trading is where information technology all started. Over the years I take refined reversal trade entries into a unproblematic step-by-stride process.
Entering trades does non need to be hard – remember, my goal is to keep everything simple.
Getting in at the Right Time
In the previous chapter I explained that a reversal comes in three parts.
- The preceding trend.
- The Indecision candle(s).
- The reversal tendency.
You lot need to enter the reversal merchandise subsequently part 2 (indecision) closes, but earlier part three (reversal trend) completely takes off. Manifestly if you enter afterward the reversal trend takes off, it is besides late.
You also demand to make sure you lot do not enter besides early every bit yous could be entering a simulated setup.
In the image below you lot see a preceding trend heading into back up, indecision, and a failed reversal trend. If you entered as well early, you would have failed this merchandise.
Failed trades happen, at that place is nothing you can practise about them.
Merely getting in at the right fourth dimension lowers your percent of failed trades.
Many people await for a candle close to get in, simply I have tested this thoroughly and waiting for closes gets you in too tardily. In the epitome below you tin can see the first candle in the reversal tendency closing far from back up.
This means y’all miss out on a lot of potential turn a profit, which is obviously not good.
The central to reversal trading, or any trading for that affair is
getting in at the right time.
So, how exercise you do that?
How to Enter Reversal Merchandise
I have tested countless entry methods in the last 15 years. In that fourth dimension I have found three awesome entry strategies: entering on new high/depression, retrace entries, and distance entries.
In my free strategy I will teach yous the easiest, entering on new highs/lows.
When indecision forms on an area of support or resistance, you can use the loftier or low of the indecision candle equally an entry trigger and as a end loss.
In the paradigm above indecision has formed on resistance after a bullish preceding tendency, and then we want to enter a short reversal merchandise.
Nosotros set our entry a few pips below the low of the indecision candle, and our end loss a few pips above the highest point of the candle.
In trading, highs and lows are very of import. If a new low is created from resistance information technology indicates sellers have taken control of price, which means we want to be brusk.
Our cease loss sits above the high as a suspension of that high would betoken buyers accept regained control of price.
For long trades you ready your entry a few pips above the high of indecision, and a few pips below the low.
This is the nearly uncomplicated form of merchandise entry, simply besides one of the most effective.
Now that you know how to enter, you demand to know where to ready your target.
Where to Prepare Your Target
Targets are likewise very piece of cake, you need to make sure your target comes before major barriers like the adjacent expanse of support or resistance.
So, if you enter a long reversal from back up, make sure that your target is before the next resistance area.
The minimum take a chance to reward ratio I use is 1:ane.5 R. This means that my target has to be a minimum of 1.5 times the size of my stop.
If my cease is 100 pips, the minimum size of my target is 150 pips (one.5 x 100).
If my cease is 75 pips, the minimum size of my target is 112.5 pips (1.five 10 75).
If in that location is a major barrier like the next back up and resistance area in the fashion of my minimum target I skip the merchandise.
In the image above the support expanse is earlier my minimum target of 1.5 R is met so I skip the trade.
What Pairs and Timeframes With The Forex Trading Strategy?
The last thing y’all need to know is the pairs and timeframes.
This strategy works on every unmarried Forex pair, and it as well works in other markets like cryptocurrencies, options, futures, stocks and everything.
I trade around ten pairs regularly.
- GBPUSD
- EURUSD
- USDCAD
- USDCHF
- AUDUSD
- NZDUSD
- GBPJPY
- EURJPY
- AUDJPY
- USDJPY
However, I often have extra pairs on my list that I monitor. If you desire to run into what I am currently watching bank check out my weekly analysis on YouTube.
As for time frames, I currently merchandise these.
- four hour
- 6 hr
- viii hour
- 12 hr
- Daily
Many people do not take access to the 6, 8 and 12 hr time frames considering their broker doesn’t back up information technology.
The general rule in trading is the more than fourth dimension frames you trade the more than trades you observe.
If your broker does non support 6, 8 and 12 60 minutes fourth dimension frames yous demand to find a broker who does, or simply apply a charting platform divide to your broker.
While this strategy tin be traded with merely the 4 hr and daily time frames, there is absolutely no sense in sacrificing potential trades because your broker is too outdated to provide new time frames.
Affiliate 6:
Learn More Well-nigh My Forex Trading Strategy
If you lot want to go my latest analysis, or want to larn more price activity setups, I got y’all covered.
My Weekly Assay
Every Mon I exercise weekly analysis using my price action strategy. You can check information technology out on my YouTube channel.
Forex Mastermind
If yous want a more in-depth guide to my Forex trading strategy yous tin bank check out Forex Mastermind.
In my grade, I expand on this strategy, and I also share different price activeness strategies.
You lot can read more nigh Forex Mastermind here.
Learn My Forex Scalping Strategy
While the strategy to a higher place is an crawly twenty-four hour period trading strategy and even a swing trading strategy, for scalping you will need a different approach.
In this article, I share my Forex Scalping Strategy.
Source: https://www.forex4noobs.com/forex-trading-strategy/
