Forex Trading Strategies And Systems

I've been trading the forex markets for several years now so I've developed quite a few different systems in my time. However there are some that are more profitable than others, so let me share you with you some of my most profitable forex trading strategies.

4 Hour Trading Strategy

I created this trading strategy myself and have been using it for several years now. This one system has generated more profits that any other system I have ever used, and yet it's surprisingly simple.

I simply look at the daily trend for a particular currency pair (usually the GBP/USD, EUR/USD or USD/JPY pair) using a very simple but effective technical indicator, then I wait for two EMAs (exponential moving averages) to cross over in the same direction on the 4 hour chart.

I will then enter a position (usually after a slight pull-back) and will employ a two-part exit strategy to maximise my profits. One half of the position will be closed out early for a safe profit, and the other half will be left to run for as long as possible in order to capture those really big price moves.

As I say, this particular forex trading strategy is highly effective, as regular readers of my blog will know because I share my trading results every week in my 'Weekly Trading Updates'.

Anyway if you would like to read all about my 4 hour trading method, you can access it (for free) by filling in the short form to the right and subscribing to my newsletter.

The only problem with trading this strategy is that there will always be quiet periods and particular days where you know you are not going to get any set-ups on any of the major currency pairs. Therefore at times like these I will often employ some of the other trading methods that I keep in reserve:

CCI Divergence Trading System

This is a forex system that I've recently created and it basically uses the popular CCI indicator with two different settings. The key here is to wait until there is divergence between both of the CCI indicators at the same time because this will give you a set-up with a very high success rate.

You don't get that many good set-ups per day using this trading strategy, but when you do, you are likely to make some decent profits because it is a very high probability set-up.

I have discussed this particular strategy elsewhere on this blog so please click here if you want to find out more about this CCI Divergence Trading System.

Forex Income Engine 2.0 Methods

At the time of writing (20 June 2009) I've just started using the three day trading methods included in the Forex Income Engine 2.0 course as well. I've always been quite sceptical about many of the short-term forex methods that I come across, but I've been very impressed with these three methods so far because they do actually produce some very good returns.

Anyway if you would like more details about each of these methods you can read all about them on my Forex Income Engine 2.0 review page.

Forex Nitty Gritty Method

This trading method was included in the Forex Nitty Gritty course and although it is a very basic method, it is actually surprisingly effective. The goal is to look for pairs that are in strong upward or downward trends, wait for a pull-back, and then enter a trade if the trend continues.

I've been using this method on the 15 minute charts for quite a while now and it has always performed well for me because these continuation trends occur all the time.

Again if you would like to find out more about this particular trading method, you may like to read my full review of Forex Nitty Gritty.

Long-Term Trading Strategy

I'm not really a long-term trader but I do occasionally open a position if a good trading opportunity arises. I will usually use the daily charts for these trades and will look at a variety of indicators such as the 200 day moving average, the supertrend indicator, established support and resistance levels, fibonacci levels if applicable, and Marketclub's excellent trading signals.

I will regularly post my long-term analysis of the various currency pairs on this blog, but I will only follow this up with an actual trade if I'm really confident about my predictions.

Other Forex Trading Strategies

Finally as well as all of the trading systems and strategies listed on this page, I also have a few breakout strategies that I like to use when a good opportunity presents itself. I'm also constantly testing out new ideas and reviewing the various trading systems that I get sent regularly by product owners who want me to promote their product.

However for the most part it's my 4 hour trading strategy that I spend most time on because this is my core system which generates the most consistent and reliable profits. All of the other forex trading systems are used to boost my trading pot during the quieter periods of the week.

How To Establish a Personal Strategy

Forex trading is one of the most versatile types of investments. You can profit from price movement in either direction. You can magnify your returns to almost any degree through high amounts of leverage. You can profit in the long-term scale or profitably work with trades that last only a few minutes. You can even expand into currency futures and add options trading.

However, this also means that the forex market involves lots of different trading strategies. For the sake of simplicity, we can say that these range from the short-term to long term strategies.

At the smallest time durations, scalping takes advantage of the micro-volatility a currency pair might experience. Most scalpers open at least a hundred positions in a single day and the majority of those trades stay open for less than five minutes. The focus is rarely on trends or the fundamentals behind the currencies as much as the quick jumps that are always happening.

Swing traders are more concerned with trends. As the name suggests, they usually open a trade at the top or bottom of a price trend, just as it reaches support or resistance. If all goes as planned, the currency will turn and they can profit from the next trend—hopefully closing the trade just as the price reaches new support or resistance.

Carry trades are inherently longer term because they rely on the underlying interest rates between currencies. For instance, JPY (the Japanese Yen) maintained rock-bottom interest rates for many years. At the same time, interest rates were much higher elsewhere in the industrialized world. So if you used yen to buy dollars, for instance, and held them for a certain period of time, your profit would be the difference between the two interest rates. Magnify this with leverage, and it might be significant.

Of course, the most basic type of trading is a medium to long-term strategy based on the fundamentals. Here, you simply evaluate where you think a given currency is going and try to find a pair with one currency headed up and another headed down. If your guess is right, holding the pair for an appropriate length of time can yield good profits.

So what is the best strategy? Like most questions in investment, this has no simple answer. Each strategy has pros and cons. The cons for scalping are the constant focus it requires, the temptation to raise leverage inappropriately, and the challenge of forex brokers that allow it. Swing trading requires a good sense of timing and facility with several technical analysis tools. Carry trades are often simple to research, but it is increasingly hard to find good pairs to use since most of the industrialized nations now have extremely low interest rates.

In general, the most versatile strategy and the most useful for beginning traders is day trading based on the fundamentals. A medium range is also helpful because it requires low capital with minimal risk. This simple method is also a good starting point. As you gain more experience you can specialize into other trading strategies.

If you are an experienced trader, try learning strategies you have never used before. The ideal is to have facility in all of the methods and be able to switch between them. Certain opportunities are ideal for certain strategies but not others. If you know how to use all of the methods, you can adjust quickly and maximize your profits at any one time.

So what is the best strategy? Here’s a simple answer—probably a hybrid form of them all!