What are some forex strategy providers

Best Forex Strategy For Beginners And Experienced Traders?

Here you will get to know perhaps the best forex strategy and can test it daily in day trading and swing trading.

The foreign exchange market (Forex market) is the largest market in the world with a daily trading volume of over USD 5 trillion. All kinds of market participants can take part in Forex trading. We traders have different intentions than a central bank or an international corporation and that is why we need a functioning forex trading strategy.

In this post I will introduce you to perhaps the best forex strategy, because it has been successfully traded by big boys such as hedge funds and investment banks for decades. The good thing about it: We can do the same! I will now show you step by step how to do this.

To do this, it is necessary to refresh the basics first so that the important relationships are properly understood. Then I will show you the most common mistakes in Forex trading so that you do not lose money unnecessarily in trading. Then it goes into detail and you get to know my favorite forex strategy.

 

3 important basics in forex trading

If you want to trade forex with an online broker for profit, it is imperative that you understand how and where forex is traded. In contrast to the stock market, there is no standardized / regulated exchange. Transactions in forex trading take place over-the-counter, i.e. on the interbank market. Investment banks either act on their own account, i.e. on their own account, or on behalf of customers. Customers can be private investors, companies and corporations as well as central banks.

You must have internalized the following basics:

  1. In FX trading, pairs are always traded (EUR / USD, GBP / JPY, NZD / CAD, ...). If I want to buy the EUR and sell the USD, I go long EUR / USD.
  2. Prices are determined by supply and demand. Effects on other currencies are inevitable.
  3. The forex market is open 24 hours a day from Monday to Friday. So it is also traded at night. A distinction is made between Asia Session, London Session, New York Session.

If you have mastered this basic knowledge, you are already a whole step further than many private traders looking for quick profit in trading.

Before we devote ourselves to the forex strategy, I would like to point out that there are different ways of trading forex. Traders can conduct currencies as spot trades, futures trades, swap trades, or option trades. We concentrate here on the most common form among private traders and online brokers: the cash transactions.

 

Popular mistakes in forex trading

Less than 10% of all private traders really make money trading forex. A lack of preparation, impatience and greed are often the trigger for high losses. A winning trade is followed by two losing trades and the account melts.

Many beginners have not even dealt with strategies and setups, but of course have to throw an order (much too large) into the market immediately after opening the live account. A hit for the big boys ...

A very popular mistake is realizing losses too late. Traders tend to fall in love with your positions even when they are deep red. Profits, on the other hand, are taken too early. All in all, this means that the losses are higher than the profits. If you don't change that, you will continuously lose money.

A functioning trading strategy helps of course, but there is much more to success in trading. A proper risk management must at least include the determination of the correct position size, as well as the entry and exit levels for a trade.

Finally, one more mistake on the subject of attitudes. The mindset of a trading beginner differs significantly from that of a professional trader. While beginners want to get rich as quickly as possible and are thinking about which monster trade they can use to reach the millions in profit, professional traders have understood that the main thing is to protect the account from large losses. Of course, losses are always a part of it, because I can't always be right with my trades. But I can only execute the next trade if I have any money left in the account.

Deal with these trading mistakes and check your attitude so that you have a fair chance at all.

 

When do the prices of a currency rise or fall?

In simple terms, prices rise when demand exceeds supply and the "market" orders are executed. The fact is that there are certain events in forex trading that you have to watch out for if you want to know where the journey in a currency pair is going.

In order to understand the concept, we need a sound basic knowledge of economics, especially on the subject of central banks. Central banks are responsible for the interest rate level of the respective country (or the monetary union such as the EU). The interest rate level is in turn responsible for investments, credit demand and savings in this country and thus it also determines the country's currency.

Here is a small example:

Let us assume that the key interest rate in the US and UK is 1%. Now there is an interest rate hike in the USA to 1.5%. As the attractiveness of investing in the USA for foreign / British investors has increased, the money is transferred from the UK to the USA. To do this, I need to make a transaction on the Forex market by selling GBP and buying USD. The forex rate GBP / USD will then fall.

Now it is important to know what the key interest rate looks like in a country whose currency you want to trade and what the monetary policy of the domestic central bank is. A good overview can be found on investing.com.

You can see that among the major central banks and currencies there is a high base rate in New Zealand and the USA. In Switzerland, Japan and the euro zone, on the other hand, key interest rates are low or negative.

Of course, other parameters such as political situations or economic stimulus packages also have a significant influence on the supply and demand of a currency. But central banks are in the lead with their monetary policy.

With the knowledge we have acquired so far, we are now heading towards what I believe to be the best forex strategy for private traders.

 

Basic concept of forex new trading

Since we now know that the base rate level (and the economic / political situation) stands for the attractiveness of a currency, we can say in general:

"A currency rises when the key rate rises, a currency falls when the key rate falls."

In practice it is of course not that easy, because the market likes to anticipate interest rate decisions. But with proper preparation and a lot of practice, you can "anticipate" the decisions and take advantage of them.

We now need to find out when a central bank will raise rates and when it will cut rates. These monetary policy measures are of course not carried out arbitrarily, but depending on the economic situation of the economy.

Price level stability is defined as the primary goal of almost every central bank. At the ECB, this goal is guaranteed if prices in the monetary union are “stable”. This is the case when we have an annual price increase (inflation) of just under 2%.

If this target value is not reached, the central bank can initiate expansionary measures to boost inflation. The example of this is the ECB, which has continuously reduced the key interest rate since the beginning of the financial crisis in 2008. If inflation is above 2%, the central bank can raise the key interest rate to curb inflation. There are of course other instruments such as bond purchase programs and money supply controls.

 

What does the forex strategy look like?

Each country publishes the latest inflation figures at least once a month. In addition, there is an expectation of the market before the event, i.e. a forecast of how inflation will probably turn out.

Now there are five scenarios of what the result for this inflation data will be:

  1. The result is well above the expectation / forecast - the currency rises with high probability and high vola
  2. It's just above expectation / forecast - the currency may rise
  3. The result is equal to the expectation - the currency - the development of the currency can hardly be determined
  4. It's just below expectations - the currency may fall
  5. The result is well below expectations - the currency is likely to fall and there is a high degree of volatility

A promising trading setup can be derived from these outlined scenarios, which is the basis of a forex strategy.

 

2 of 5 trading setups of this forex strategy presented

I will now introduce you to two of five trading setups within the framework of the Forex New Trading strategy that can be traded on a daily basis. All other setups and information can be found in detail in our online course.

Use this forex strategy as an idea and develop your own concept from it, if it suits you.

 

1. Trading setup of the forex strategy

The first setup deals with the 10 most important central banks and their key interest rate decisions, which take place 8-12 times a year. We want to consciously trade the currency whose central bank has announced an interest rate decision.

Our setup looks like this:

At the weekend, when the markets are closed, we use an economic calendar to look for key rate decisions in the coming week. I use the economic calendar from forexfactory.com every day. But you can also use German versions like de.tradingeconomics.com.

In the calendar you will not only find the date and time of the event, but also the forecast of the economists and analysts. Let's take a look at the Bank of Canada's policy rate decision and the corresponding Forex strategy as an example.

 

In this picture from forexfactory.com we can see that the key rate decision (overnight rate or cash rate) of the September meeting of the BOC was announced on September 6th, 2017. The forecast shows us a 0.75%, so no change compared to the previous month.

The result was a 1.00%. Contrary to market expectations, the BOC has raised the key interest rate. A big surprise!

How did the Canadian dollar react? Extremely bullish as you can see in the charts below (CAD / JPY and USD / CAD).


Source: Metatrader 4, metaquotes, CADJPY


Source: Metatrader 4, metaquotes, USDCAD

You can see that the algotraders have catapulted the CAD up about 200-300 pips (depending on the FX pair) in a few minutes. But not only algos and scalpers, but also day traders and swing traders have their fun, as the higher time units show, because in the following days the CAD continued to rise.

But it also shows that a currency pair is always determined by two currencies. In the following days the USD generally strengthened again, the JPY weaker. Of course, the development of USD / CAD and CAD / JPY also depends on this.

This first setup is aimed at targeted trading in the context of interest rate decisions. We only want to act if there is a surprise (otherwise not)!

I always have a surprise when the actual expectations have not been met - both positively and negatively. In the above example there was a positive surprise because the market did not expect a key rate hike. I can use this fresh, positive sentiment for all relevant trading styles, i.e. scalping, day trading and swing trading.

As a day trader, for example, I can place an order within the first minute after the interest rate change has been announced, or wait for a return and come into the market at more favorable prices.

Of course, I can also act if there are no surprises, but then I have to pay attention to many parameters in the context of the statements or press conferences. That would be another setup that I will present to you in the online course or in the trading lounge.

 

2. Trading setup of the forex strategy

The second setup deals with a "forerunner" to the interest rate decision. Again, we are working with an economic calendar, but now we are paying attention to the most important indicator of the central banks - inflation.

The announcement of inflation data can also trigger high volatility in the currency under consideration if there are significant deviations from the forecast.

We can turn this catalyst into a forex strategy. As with the interest rate decision, we can trade it with a 10-15 point target as a scalp trade, with a 20-40 point target as a day trade or with a 50-200 point target as a swing trade. The points given are not binding, but serve as input and rough orientation for the individual trading styles.

If you want to trade inflation data, you should search for “CPI” (Consumer Price Index) in English calendars and for “VPI” (Consumer Price Index) in German calendars.

As an example I have the calendar from 09/12/17.

At the top you see the CPI data from Great Britain. So it is clear that the GBP is affected. 2.8% was expected as a prognosis and 2.9% came in the end. We thus had a slightly positive deviation. This small, positive deviation caused around 75 pips in GBP / USD in the following hour.

We would have seen an even greater movement with a strong deviation, such as 2.5% in the negative and 3.1% in the positive case.

Also note here: the greater the deviation from the forecast, the more volatile it becomes and the better our chances of a profitable trade. Quite simply because the sentiment in the currency is even stronger / weaker and many market participants want to (sell) the currency.

Here, too, you can think about which trading style you want to trade the scenario with, because this also determines the risk management for the trade.

Now you have got to know 2 of 5 trading setups in the context of FX news trading. These setups don't happen every day. With the other approaches, however, you have 1-2 good trading opportunities in day trading and swing trading in total.

You may have noticed that these setups basically do without charting. But of course there is the possibility to optimize the trades by means of chart analysis, especially when setting Stop Loss and Take Profit. I use simple support and resistance zones or moving averages like the EMA200.

 

Conclusion:

Ultimately, it is first about testing every trading strategy on demo accounts without risk. You have to have a feel for the market, the financial instrument, the volatility of the event, etc. to get.

For me it is the best forex strategy because it combines fundamental analysis and chart technique, I can trade it cleanly with my preferred trading style (day trading) and after years of development I notice when, how and where I can optimize things in a targeted manner.

And as mentioned at the beginning, the Big Boys also act on this approach, both via algos and in a discretionary manner.

In order not to arouse false expectations, I will end this article with the clear indication that any strategy is only as good as the trader who ultimately implements it. Finding and developing a (theoretically) working strategy is the easiest part of trading. The patience and discipline of correct implementation, on the other hand, are the most difficult!

I wish you every success!

Best wishes

Tim

 

P.S: Would you like to find out more about news trading? Then check out our free trader training!