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

Best Hedging Strategies - 4 pillars of Profit

Hedging strategies help traders mitigate risks and protect trading accounts from losses. Discover the best hedging strategies to profit from forex. 6 May 2010 was a normal day...

Crafting a Robust Trading System: Strategies, Analysis, and Management

In today's complex financial landscape, trading across various markets demands a strategic approach. Creating an effective trading system involves a combination of technical expertise...

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...

Excelling with the Breakout and Retest Trading Strategy

The allure of the Breakout strategy lies in its promise to savvy traders and investors, offering a gateway into trade right as significant price action begins to unfold...

Strategies for Trading Forex CFDs

This article will explore various strategies for trading forex CFDs. Understanding these strategies will empower you to make informed trading decisions...

The Ins and Outs of Forex Scalping

In the investment world, scalping is a term used to denote the "skimming" of small profits on a regular basis, by going in and out of positions several times per day...

Risk management strategies for Forex traders

Forex trading is an exciting and potentially lucrative venture that attracts countless individuals worldwide. However, despite the promises of profits, it’s crucial to understand the inherent risks...

Guide to Short Selling: Navigating and Capitalizing on Market Declines

Short selling stands out in the financial world as a unique trading strategy that allows investors and traders to gain from declining asset prices. This approach, though less conventional than straightforward buying...

The Comprehensive Beginner's Guide to Trend Trading Strategies and Effective Risk Management

Trend trading, a cornerstone strategy in financial markets, offers traders the opportunity to capitalize on significant price movements, whether they're heading upwards or downwards...

Top 10 Forex Strategies for Profitable Trading in 2021

The estimated trading volume of the foreign exchange (Forex) market stands at $6.6 trillion, a figure that exceeds even the volume traded across all stock markets...

Five Tips For Enhancing Your Trading Performance

Trading is a highly competitive field that requires skill, discipline, and knowledge. Whether you are a beginner or an experienced trader, there is always room for improvement...

Range Trading: A Simple Forex Strategy Explained

It is natural for all traders to seek the best possible technique for achieving their trading goals. As range trading becomes increasingly popular, more and more people are looking...

Effective Forex strategy with a high profit potential

The information presented in this article is aimed at training beginners and intermediate traders. This information will...

Unlocking the Potential: Navigating the Dynamics of Day Trading the EUR/USD

In the realm of financial markets, day trading is emblematic of the fluid nature of investment horizons. Among the vast array of trading instruments, the EUR/USD currency pair reigns supreme...

Mastering the Trading Plan: A Comprehensive Guide to Minimizing Errors and Enhancing Profits

In the high-stakes world of trading, the old adage, "Those who fail to plan, plan to fail," resonates profoundly. The dynamic world of trading requires more than just intuition...

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...

Why are 98% of Forex strategies ineffective?

This question is probably asked by every novice trader. Almost every information resource on the subject of financial markets provides a separate section...

How To Cut Losses Trading Cryptocurrencies

Even good trading and investment strategies can lead to portfolio losses if the basic rules of money management are neglected. In addition to the basic rules typical for investing and trading any assets...

Top IronFX Forex Trading Strategies in 2022

A forex trading strategy refers to a unique technique used by forex traders to guide them regarding whether or not to buy or sell a currency pair at any given point...

Limit Order vs Stop Order: an Overview

A trade order is a request that a trader places on a marketplace or any online investment intermediary (like a broker) to trade on some asset. This is the basis. Without understanding its essence...

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.