ACTUAL FOREX TRADING
The Best Forex Trading Strategies
The internet contains numberless trading strategies. However, only some of them will provide an edge. Most need to be revised as they are fundamentally flawed. They promise great returns, but the reality is very different.
Why not just copy the best trading strategies? Why not do what the professional traders are doing? Which trading strategies work, and how do you trade them? Let me share the answers with you. The answers will be eye-opening!
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What a successful trading strategy isn't
What are the most successful trading strategies of all time?
"Trading a single price pattern or technical indicator will never make you successful. I should know, as I've been trading for fifteen years... Yes, a trading plan should be simple, but you won't have a trading edge if it is too simple"
What is a Trading Strategy?
A trading strategy is a set of trading rules. These rules should include the following:
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Which direction to trade
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How and when to enter a trade
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How and when to exit a trade
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How much to risk per trade
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Which assets to trade
The strategy's purpose is to provide a trading edge, i.e., to help the trader make successful trades.
Trading strategies are also called trading plans or trading systems.
Go to my How to Create a Trading Strategy Guide to learn how to create a trading strategy.
What a Successful Trading Strategy isn't
Do you believe in any of the following:
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A trading system can provide very high returns quickly, i.e. a get-rich-quick scheme.
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A trading strategy can be based on a singular indicator or price pattern, such as a moving average crossover or trend reversal pattern.
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A trading edge can provide a 90% win rate.
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Trading strategies can provide consistent returns from trading just thirty minutes a day.
If you believe any of the above, your beliefs must be revised. You're mistaken. I'm sorry, but trading is going to be highly disappointing. Your expectations are too high, and you'll never going to find a trading system good enough. Wrong expectations also lead to higher trading emotions such as discouragement, fear, and greed, as covered in my Guide to Beating Trading Emotions.
Please don't misunderstand me. Trading can be very lucrative and rewarding. However, it requires a detailed trading plan, strong self-discipline and risk management, and hard work.
So, what is a good trading strategy? How should you trade? How do the most successful Forex traders trade? Read on...
"Most unsuccessful traders are unsuccessful as their expectations are too high. They think Forex is about getting rich quickly. They believe it's possible to trade with a 90% win rate. Unfortunately, Forex doesn't offer either of those things. It is about getting rich slowly with a 50% win rate at best"
The Most Successful Forex Traders and Trading Strategies
Who are the most successful Forex traders, and what are their trading strategies?
George Soros
George Soros is the most famous currency trader of all time. His most renowned trade - shorting the GBP - resulted in him making a $1 billion return.
Soros' most famous trading strategies have always been simple. They are heavily based on:
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Fundamental analysis. George Soros trades currencies he believes are over or undervalued. He does this because he has a fundamental bias based on the monetary policies (or lack of) set by central banks and governments, which he believes will unexpectedly weaken or strengthen currencies.
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Low-risk, high-return trading. His trades are based on very healthy risk-to-reward ratios. Either he loses a little or gains a lot. High-return trades are only possible by trading a trend.
Bruce Kovner
Bruce Kovner is another famous name in currency trading. He is one of the traders featured in Market Wizards.
His trading strategies are focused on:
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Trend trading. Bruce Kovner is a trend trader. He analyses markets using a combination of fundamental and technical analysis to predict future trends.
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Fundamental analysis. Kovner uses fundamental analysis to forecast upcoming market trends.
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Technical analysis. He uses technical analysis to calculate stop losses and take profits.
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Risk management. Bruce Kovner has taught that solid risk management is also a key to successful trading.
Bill Lipschutz
One of the best traders of all time.
His trading strategies include:
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Fundamental analysis
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Trending trading
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Risk management
The Best Forex Trading Strategies
Okay, so what is the best way to trade? What is the best trading strategy, system, or plan?
Well, based on the above, i.e. the most successful Forex traders of all time, the best trading strategies must include the following:
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Fundamental analysis
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Trend trading
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Risk management
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Healthy risk-to-reward ratios
Let's look at each of these areas in more detail:
Fundamental Analysis
Like technical analysis, fundamental analysis can focus on various indicators - there are numerous ways to analyse the markets from a fundamental point of view. However, fundamental analysis in FX trading usually entails the following:
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Forecasting interest rate changes. This is usually done by analysing inflation and economic figures.
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Forecasting changes in monetary policy
Take my Free Fundamental Analysis Course to learn how to trade Forex using fundamental analysis.
Trend Trading
A strategy must be trend-following. Successfully riding a trend is the ultimate way to earn a profit from the markets.
Range-bound strategies usually result in more trades and tighter risk-to-reward ratios.
Counter-trend trades are complicated, as the timing must be near-perfect. Most counter-trend traders lose money.
The trend is your friend. Simple.
Risk Management
The trader will fail even with the best trading system without strict risk and money management.
Strick risk management includes:
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Always setting a stop loss and take profit
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Always risking no more than 1% per trade
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Using reasonable leverage
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Being aware of upcoming high-impact news events
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Segregating funds between brokers and savings accounts
Learn more about risk management in my Ultimate Guide to Risk Management.
Healthy Risk-to-Reward Ratios
Despite what other trading educators say, a risk-to-reward ratio of around 1:2 is unhealthy. I aim for 1:10RR at a minimum. I suggest traders at least close at 1:5RR. The higher the reward, the better.
My Best Forex Trading Strategies (that actually work)
I've been trading since 2010, and I have extensive experience. I've developed and traded numerous strategies. My current trading strategies are undoubtfully the most rewarding. Not surprisingly, they include the same techniques and principles used by George Soros, Bruce Kovner, Bill Lipschutz, and other professional traders.
This is how I trade, which I've found the most effective way to trade from over fifteen years of experience:
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Create a bias. I first choose which currencies to trade and the direction in which I'll trade them, i.e., I create a watch list. This watch list is based on fundamental analysis. My analysis focuses on inflation rates and economic figures to forecast interest rate changes.
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Identify entry and exit points. I do this using technical analysis - price action patterns, Japanese candlesticks, moving averages, the RSI, and multiple time-frame analysis.
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Only take trades with potentially high risk-to-reward ratios. My average return per trade is just over 1:3 risk-to-reward, or in other words, just over 3% per trade (if risking 1% per trade). However, I try to return at least 1:10 RR per trade. My all-time biggest win is 1:24 RR!
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Use strict risk management. I follow several risk management rules, including risking 1% per trade, tracking upcoming market-moving news, and segregating my trading funds.
In my Trading a Small Account trading series, you'll see that my Forex trading strategies also work on a small account.
Take my Ultimate Forex Trading Course or watch my free YouTube videos to learn more about my trading style.
View my Forex trading results.