Introduction

Building a trading strategy that works well with both trader’s abilities and market conditions consumes a lot of time and even money. There are interesting approaches shared by experts on the internet but some of them are too complex and need thorough understanding to apply, others are not suitable for common traders. This article will be suggesting 3 simple strategies for beginners.

Effective Forex Strategies 2020

Using multiple time frames

Trading by the trend is quite a safe way to make profits but the prices always go in waves, up and down, consecutively. To identify the trend, you need a look at a bigger picture or a longer time-frame. It’s where waves in shorter time-frames combine together to form a smoother trend line.

The core of this strategy is that you trade on the shorter time-frame by the trend of the longer one. You have an overview first then you go deeper and look for certain opportunities. Thanks to that, you would not go against the market and that’s why it is said “a safe way”.

The next thing you need to consider is to choose a set of time frames. They must be relevant. The trend in the monthly chart does not tell much about the movements in the 15-min chart. Here are some common sets:

  • 5m – 30m – H1
  • 15m – 1m – H4
  • H1 – H4 – D1
  • D1- W1

Let’s see an example for the EUR/USD pair:

Forex strategies 2020

As can be seen on the daily chart, the EUR/USD pair has witnessed a clear rise from March 19. You can draw a trend line and use lagging indicators to confirm the long term trend.

Trading Strategies 2020

Now, let’s zoom into the H4 chart. Still, the upward trend prevails.

Best Forex and CFD strategies

Lastly, the chart H1 is served and the place you open your positions. Based on a clear upward trend recorded from daily and H4 time-frame, long positions should be the right option. The final thing you have to do is choosing the right entry points for maximising your profit. This is where leading indicators and price patterns do their job; also keep an eye on support and resistance lines (support in this example).

An advanced way to use this strategy is for reversal trading. Seeking for the overbought or oversold zone in the longer time-frame before you move to a shorter one and find the reversal point.

Trading the news

News is an important factor driving the market. You can see how reports on the number of coronavirus cases let the market down. Most forex brokers have public economic calendars with events and also the attached data on previous and forecast and actual number. Normally, if the actual figure is better than the forecast and the previous one, the price of the relevant asset responds correspondingly.

Keep in mind that not all news has the same level of impact. Some truly affect the prices; for example, Non-farm Payrolls and the USD. Besides, affecting duration is also needed to be considered since some news just makes a short fluctuation while others can create a totally new trend.

Therefore, after choosing news and assets to trade from the economic calendar, you need to determine how strong and how long of its impact then decide the proper time-frame and take profit/stop loss level.

In the next step, a detailed plan with different scenarios is required. As aforementioned, the economic calendar provides the previous data and the forecast of experts. From that, you can draw different perspective with your responses if:

  • The actual data goes worse than the forecast
  • The actual data goes exactly as forecast
  • The actual data goes better than the forecast

You should spare some spaces to record the reaction of the market after the news comes out. This is an important reference for your next trading on the same news.

There are some tactics to apply when the news comes out:

  • Keep up with the momentum: This approach is for traders that want to benefit from the very first movements so the shortest time frames are favoured. When the time comes, the price will be pushed to one side. You must keep your eyes close with the movement and close your orders immediately when the momentum weakens. Remember to set up a stop-loss level in case the market does not go as your orders.
  • Waiting for the recovery: The advantage of this tactic is you will have time to assess the real impact of the news. Just wait for the early birds to claim their profit and make the price bounce back a little bit; when the foot of the second wave appears, enter the market. In this case, your stop loss should be below/above the bouncing level when the price goes up/down.
  • Follow the breakout: If the market is cumulative, the news emerging can break this state. You just need to follow the newly created trend and set your stop loss outside of the cumulative zone.

Scalping

This strategy intends to take small but frequent profits from many positions. The orders will be opened and closed within an hour. The traders have to stick with the chart to constantly execute their orders. In return, the risk is very low for this approach.

If you want to try this strategy, the common pairs should be your choices since they have high liquidity, meaning lower spreads and easier to reach the profitable side.

Considering integrating the multiple time-frame in the first strategy, it ensures your orders go with the trend and limit the risk. Using a short time-frame with a leading indicator like RSI, you can place your order at reversal point when the price just comes out of the overbought or oversold zone.

Your actions are like hit and run so you should not stay with an order for too long, especially losing ones. Just cut it out, and let the winning orders offset. A drawback worth taking into account is that Scalping also associates with repetitive manipulations so it may cause tedium.

Combination

With the US unemployment rate strongly growing due to coronavirus, the USD had been weakening and that made EUR/USD climb in the last week of March. The current upward trend is strongly confirmed by both daily and 4-hour charts. As a scalping trader, you can confidently make profits by going long on this pair with many small positions.

Conclusion

Trading is not a game of luck but a war of mind and traders need a strategy to win this war. For each individual has different abilities, thus, there is no perfect method for all. However, there are still some basic strategies that you should make use as a foundation for your approach. Based on market condition, combining strategies can also be a suggestion.

TRADE FOREX

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

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