HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
Exness information and reviews
Exness
86%

How to create a personal trading strategy on forex


Would you rather choose fishing or skiing as a hobby? The answer to such a simple question can help you find the most effective trading strategy.

There are many ways to make money on Forex, but you need to understand your strengths and weaknesses in order to choose a profitable forex strategy. Most clients of brokerage companies are sure that there is “the only correct way to trade” and this is a major misconception! It is human nature to experience discomfort from change, so it is much easier for most traders to accept someone's “right trading strategy” than to find their own as that will surely involve changing and adjusting the strategy continuously.

Trading strategies


Fishing and skiing are like trading in the direction of the market and against it. Fishermen are patient, calm and adhere to a certain pattern of behavior. Skiers, on the contrary, love thrills, drive and movement, and try to earn a profit on corrections. However, you should not completely rely on the above models, but just need to take into account your preferences when choosing a forex strategy.

Time frame


The choice of the time frame is the second question that most traders consider to be of top priority. Usually, traders who prefer to work within the framework of a trend, use medium-term and long-term deals, as the trend develops over a period of months, not days. Traders who trade against the market use shorter time intervals.

As a rule, the most effective way to earn money on short-term transactions is to use hourly charts and target levels of at least 30 points. Target levels of less than 30 points are considered ineffective because the spread is charged to the trader. Take, for example, the most liquid EUR/USD pair in the market, the spread (the difference between the purchase price and the sale price) for which is 3 points.

If a trader sets profit and loss levels equal to 10 pips of the purchase price, he must earn 13 pips (target 10 pips + 3 pips of the spread) or exit through stop after 7 pips (10 pips – 3 pips of the spread). The ratio of profits / losses for such short-term transactions is too low, which virtually destroys the chances of making profit.

Types of analysis


After the trader has determined the appropriate time frame, he needs to decide on the type of analysis that will help him make the right trading decisions. There are two main types of analysis: fundamental analysis and technical analysis.

Proponents of fundamental analysis ridicule attempts of technical analysis fans to predict price movements on current price charts. Ardent fundamentalists view technical analysis as a ritual similar to fortune telling. News, economic reports and comments from representatives of financial institutions – these are the real tools of a fundamentalist.

Proponents of technical analysis, in turn, point to the ineffectiveness and inconsistency of fundamental data and argue that any news is taken into account in the quotes of the currency pair, so the graphs can predict future price movements. Which of them is right? No one. Using only fundamental or technical analysis is similar to fighting in a world boxing champion using one hand only.

Fundamentalists may argue that the demand for oil will push its price to $ 100 per barrel and lead to parity between American and Canadian dollars, but if they start selling USD/CAD on an oversold market, when there is a significant divergence between the momentum indicator and the price, they will lose money, even if their prediction ultimately comes true.

On the other hand, a technical trader may sell from the Fibonacci level, but unexpected economic news may lead to an upward price spurt and a breakthrough of several resistance levels. As a result, an open short position causes significant losses.

Fundamental analysis - for long-term positions, technical - for short-term


Despite all the controversies, we can safely say that fundamental analysis is most suitable for long-term positions, and technical – for short-term ones. Major economic events, such as GDP growth, interest rates and the balance of payments, directly affect the trend direction in the long run. Consider, for example, the movement of GBP/USD in 2005 (Fig. 1).

At this time, the Federal Reserve Bank of New York raised the federal funds interest rate by 200 basis points from 2.25% to 4.25%. The Bank of England, in turn, faced a slowdown in the economy and a decline in the consumer sentiment index, and was forced to reduce the interest rate from 4.75% to 4.5%. The difference between interest rates, as a result, became minimal (by 2006, the US and UK interest rates were equal).

Traders who have placed a reduction in the difference between interest rates in the long term, have gained significant profits from the decline in GBP / USD.

The situation with USD/JPY was exactly the opposite (Fig. 2). As American interest rates rose and Japanese remained at zero, the value of the pair rose by 20% over several months. Traders who predicted this development were able to earn significant profits on long-term long trades.

If fundamental analysis is an effective tool for long-term transactions, then technical analysis is successfully used over short time intervals. This can be explained by the fact that news does not affect the course immediately, but gradually - prices are clamped between support and resistance levels and reluctantly break out of this range.

For example, on the hourly chart of EUR / USD (Fig. 3), the price fluctuates between the maximum and minimum values and the trader can make a significant profit by selling from resistance levels and buying at support levels.

Results


In the Forex market there is a place for both fans of fundamental analysis who carry out long-term operations, and for supporters of technical analysis and short-term trading. You can endlessly argue about the pros and cons of fundamental and technical analysis, but you should understand one indisputable truth – you need to use the analysis that best suits you.

Otherwise, no matter how correct your approach would be, there is room for failure. First of all, the trader needs to understand himself, and not try to guess the market movement.


RELATED

How to use macd indicator in forex trading?

To make the trading process easier and more successful many brokers and traders prefer to use forex economic indicators. These are half-automatic programs and aim at depicting this or that criteria...

How to Make a Cryptocurrency Trading Plan

With each passing day, more and more traders join in on cryptocurrency trading. It’s unsurprising, considering the cryptocurrency market has been rapidly expanding for over a decade...

Forex signals and strategy systems in currency trading

Exchange of a nation's currency for that of another is Foreign Exchange (FOREX). The foreign exchange market is a largest non-stop financial market in the world...

How to make money on using a scalping strategy?

Many traders who trade on the forex exchange like to use a scalping strategy. Such a strategy involves a series of short-term daily transactions...

Maximizing Day Trading Success: Optimal Times, Strategies, And Market Insights

When it comes to day trading, simplicity can be beneficial. Spending two to three hours daily is often more advantageous for most traders in stocks...

Indices Trading Strategies

Offering lower risk than individual stocks, alongside a more diverse portfolio with smoother price movements, stock market indices around the world are powerful indicators...

Exploring Advanced Forex Hedging Strategies

Forex trading can be a thrilling endeavor, but it also carries inherent risks. To manage these risks effectively, traders often turn to hedging strategies. In this article, we will delve into various types of Forex hedging strategies...

What Is Scalping Trading in Cryptocurrency?

Scalp trading in crypto is a strategy that short-term traders employ to take advantage of trading opportunities. It is not a novice, but it can be profitable. The professional scalper...

How to Make Profit with Stop Losses

The international currency market quickly gained its popularity due to the possibility of active use of borrowed funds (leverage) by traders. In financial markets...

Economic Event Trading: Comprehensive Strategies and Essential Tips

Trading based on economic events, also known as event trading or news trading, is a prevalent approach among traders and investors. Events such as economic data announcements...

Investment Strategies: How To Choose The Right One For You

One person wants to save for retirement 25 years. Another wants to invest in various instruments for no longer than a year. These investors have different goals and investment timing, which means different market behavior...

Three Popular Gold Trading Strategies When Trading Gold CFDs

Trading gold has long been a favored avenue for investors looking to navigate the world of commodities. The precious metal's status as a store of value has endured for centuries...

Martingale Forex Strategy

The dream of every trader is to find a strategy that guarantees if not 100% success, then at least 99.99%. Of course, at first glance it looks absolutely incredible...

Deep Dive into the SMC (Smart Money Concepts) Forex Strategy

In the vast universe of trading strategies, the SMC Forex trading strategy has emerged as a contemporary approach to price action trading. But what exactly sets it apart? Let's delve into this...

Best strategies for Forex beginners

Forex trading attracts new players by its unlimited earning potential and deceptive simplicity. After reviewing a trading platform's functionality, it may...

Top Gold Trading Strategies and Tips

Trading gold is much like trading forex if you use a spread-betting platform. A gold trading strategy can include a mix of fundamental, sentimental, or technical analysis...

Deep Dive into Low-Spread Scalping Strategies for Forex Traders

In the realm of Forex trading, where rapid price movements and market dynamics are the norm, scalping stands out as a popular approach that leverages minute fluctuations....

3 Strategies to Boost your Trading Mindset in 2023

Getting ready for the new trading year? Check out this article to discover some of the most effective trading strategies to boost your goals!

Forex trading techniques

The forex market is an incredibly active and highly volatile financial market accessed by millions of traders worldwide. With a daily trading volume exceeding US$6 trillion...

Crypto trading in 2023: trade crypto with a strategy

Crypto trading has had its difficulties over the last few years, and many traders are now wondering whether to trade crypto in 2023 or ever again...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%
Riverquode information and reviews
Riverquode
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.