HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

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

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...

Top 10 forex trading strategies for beginners

If you’re a forex beginner, learning how to better manage trading in the forex market is key to achieving success. This is because the forex market is an incredibly volatile financial market...

Steps to a successful forex trading strategy

Are you an aspiring trader on the cusp of diving into the world of trading forex but unsure how to go about it? Or are you a seasoned forex trader perhaps who’s become a little too complacent...

Three Black Crows trading strategy

The three black crows candlestick pattern is a bearish reversal pattern that is considered quite effective. The three black crows' signify a change of control from the bulls...

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...

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...

Profitable Forex Trading Strategies Nobody Tells You About

One of the key aspects to be successful in trading is to maintain a high level of discipline. One keyway to enforce discipline on the FX market is to have a robust...

CFD Trading Strategies

Trading CFDs has the possibility of being rewarding, but can also be extremely risky. To get started you'll want to find a reputable broker such as OBRinvest and...

Avoiding Bull Traps in Trading: Understanding and Strategies

In the dynamic realm of financial trading, a solid comprehension of various market phenomena is the linchpin for triumph. A pivotal concept that demands traders' attention...

Top 5 Successful AMarkets RAMM Strategies in July

Today we’ll review the 5 best performing RAMM strategies of the past month. The Copy Trade Archer strategy proved to be the best performing strategy in July...

How To Strategically and Effectively Diversify A Currency Trading Portfolio

In the multifaceted arena of currency trading, a trader’s success pivots not solely on precise market analysis and judicious decision-making but significantly on the astute construction of the trading portfolio...

How to Build a Winning Forex Trading Plan?

Many traders start trading Forex in hopes of making quick and effortless profit. It’s true that the Forex market presents many opportunities for traders to earn money off of price movements...

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...

Free Forex trading system that works

Financial markets shouldn't be traded without a sound tried and tested trading system, and the Forex market is no exception. Making the right...

Crypto trading strategies for cold coins this winter

In this article, we’ll explore three crypto trading strategies that are common to experienced crypto traders. None of them are a magic formula or bulletproof cryptocurrency investment strategy for all coins...

Top 5 Successful Copy trading strategies in July

Today we’ll review the 5 best high-yield copy trading strategies of the past month. The BRNT2 strategy proved to be the best-performing strategy in July...

Everything you need to know about Margin Trading

How can you become more skilled in online CFD trading? The key is to possess as much knowledge as possible about anything that concerns the financial markets and the available trading tools and resources...

What Is Revenge Trading, And How Can You Avoid It?

Sometimes the market exhausts us mentally and psychologically. For example, you open a trade in full confidence that you have thought everything through and calculated...

Top Forex Trading Strategies For 2023

How do you know which trading strategy will work best in your particular case? You won't use them all at once. What kind of trading should you choose?

Deep Dive into Scalping Trading Strategies and Their Efficacy in Short-term Profit Generation

In the thrilling world of forex trading, there's a tactic favored by those who love the adrenaline rush of rapid-fire decision-making: scalping. This method is akin to the quick footwork of a dancer...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
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.