Forex strategy

If you are just starting to study Forex, there may be a problem of information "chaos". It's hard to know where to start. Which is better than candlestick or technical analysis? Which indicators to learn first? Can you immediately install an automatic Expert Advisor or use trading signal services? Our advice: look at the basic technical indicators and create your strategy.

There are different options for classifying strategies. For example:

• By the type of opening transactions: trend, countertrend, channel, on corrections, etc.
• Trading time: by Forex sessions (Europe, America and Asia), publication of fundamental news and statistics.
• Automatic and semi-automatic (with manual confirmation of opening a deal), etc.

In this article, examples of strategies are divided by the main time frames (timeframes). Each of them has its characteristics and methods of market analysis.

You can use strategies not only on the recommended timeframes. For testing, choose historical data for the last 2-3 years. Forex is changing rapidly; more "long" intervals will not give the correct information on the current market. Indicators used in strategies are included in the basic set of technical tools in all trading terminals!

M1 (scalping). We profit from the “chaos” of the market

The youngest and, accordingly, the most "noisy" timeframe. Transactions last no more than 2-3 minutes, profit 5-7 points. It is for M1 that the most automatic Expert Advisors are offered.

Indicators. Only a brief description, look for more information about the indicators in books on technical analysis and Internet.

• Simple (SMA) and exponential (EMA) moving averages. Trend indicators by which we determine the opening point of the option. The strategy is not intended for trading during flat periods. We trade only if the range is between at least 15-25 points!

• ADX (Average Directional Movement). Confirmation of the trend by the Moving Average. The indicator goes up and above the level of 20-uptrend, the movement down below the level of 40 – downtrend. The movement between the levels is flat.

Signals:

• BUY. The "fast" EMA crosses the "slow" SMA from the bottom up. ADX rises above level 20.
• SELL. Opposite conditions: ADX down from level 40. EMA is below SMA.
• Take Profit/Stop Loss. At the level of 5-6 points from the opening price. In scalping, a trader earns on a large number of transactions. It is important to quickly open/close a position here; complex money management is not needed.

Important! The simplicity of M1 is deceptive – it requires a nervous system that is naturally inclined to fast trading, and if there is no such thing, choose more calm options.

M5. Less "noise" and conservative scalping

"Noise" is less than a minute, but still quite a lot. It is usually used as the lowest timeframe confirming the entry point on the M15 and for trading on the news. It can be used as a working timeframe if you follow the rules of scalping: profit/loss 10-15 points, we close in 10-15 minutes.

If there is a strong trend in profit, we keep the position under control. You can give profit to grow, close at the first reverse candle!

Indicators:

• «Round» price level. Levels whose quotes have the last two digits of the quote 00 or 50.

• Parabolic SAR. Determine the direction of the short and medium-term trend. Indicator points are below the price and directed up - an uptrend. Higher prices and directed downward - a downtrend. 

Signals:

• BUY. Bounce up the price from the "round" level. P-SAR is below the price.

• SELL. Opposite conditions: The price is down from the "round" level. P-SAR is above the graph.
• Take Profit/Stop Loss. For the next "round" levels or the last local max/min.

Important. Almost any indicator can be turned into a "scalping" indicator on M1-M5, the main thing is to regularly monitor the market and adjust the parameters, especially in automatic Expert Advisors! Strict money management: small volumes of positions and no 1:500 and 1:1000 in leverage.

M15. Effective technical analysis

The first timeframe on which it becomes possible to correctly assess the situation using technical analysis and open a position using only M15.

Indicators:

• Heiken Ashi. The candlestick chart option better shows the presence and direction of the trend. The maximum of "noise", fast impulses, rollbacks and corrections is removed.

Delay can be an advantage for trading high volatility assets such as yen crosses GBB/JPY or EUR/JPY - its «synthetic» candles filter out most false breakouts and entry points well.

• MACD (12, 26, 9). This indicator works both as a trend and as an oscillator instrument, so it will be the final signal to open an option.

Signals:

• BUY. Minimum 2-3 ascending Heiken Ashi candles. MACD breaks out from below or above the zero levels.
• SELL. Opposite conditions: downward Heiken Ashi, MACD is above the zero levels.
• Take Profit/Stop Loss. Following the trend: profit from 15-20 points, SL is 1.5-2 more.

Important. When switching from M5 and M1, a decrease in profit is often observed. It seems strange, the theory states the opposite - the higher the timeframe, the more reliable the signal for more profit. The problem of psychology - when leaving short-term transactions, scalping habits remain, it is difficult for a trader to wait even 10-15 minutes for the completion of a transaction. You need to calm down, the results will improve.

M30. Intraday trades and reaction to the news

For intraday trading, where trades last several hours, a period of 30 minutes works the same way as M5-confirms the opening of the entry point. It can be used as the main one: all the principles of graphical and technical analysis work, there are enough strategies and indicators optimized for M30.

Strategies on M30 minutes are considered moderately aggressive. They are used by traders when there is a lack of time for a detailed analysis and control of the situation, but 2-4 trades per trading day can be executed - enough to make money with reasonable risk.

Indicators:

• RSI with a period of 5, 14 and 21. Trend indicators must necessarily be confirmed by at least one oscillator indicating an overbought when buyers can no longer move the price up, or oversold where there is almost no one in the market to sell at lower prices.

Signals:

• BUY. All RSI is coming out of the oversold zone.

• SELL. Opposite conditions: The RSI came out of overbought.
• Take Profit/Stop Loss. On the last local max/min, but not less than 20-20 points in profit.

Importantly. Analysis of the M30 allows you to reduce the influence of fundamental factors: the trader has time to carefully study the economic calendar so as not to open deals at the time of strong speculation. But on a strong trend in 15-30 minutes after the news, it is quite possible to trade.

H1. Calm profit

The timeframe on which professional traders determine the direction of the medium- and long-term trend. There are fewer signals, but they are more reliable for all assets, highly volatile, such as GBP/USD or cross pairs. Disadvantage: a sufficiently large amount of deposit or leverage is required to withstand current drawdowns.

Method of two Stop Loss

Like any other strategy, the H1 timeframe requires proper loss management, and it is much easier to calculate the potential profit. Transactions on average are opened for 3-4 hours, signals appear even less often, so you have to wait a long time for the result. Losses cause additional stress, the desire to return losses on the next signal. The technique of real and subconscious foot helps to remove the emotional factor:

• “Real” Stop Loss determines the maximum loss based on the strategy, currency pair, market and expected to Take Profit

• "Subconscious" Stop Loss is a quick close when a trend reversal when it is obvious that the strategy has given the wrong direction.

Indicators:

• Bollinger Bands (BB). The indicator reports the direction and volatility of the current trend, and the horizontal movement of the lines will show flat − in this case, it is better to stay out of the market, especially if the price moves in a narrow channel.

• Stochastic − the oscillator will assess the current balance between buyers and sellers: the predictor above level 80 − the end of the uptrend (overbought), below 20 − the end of the downward (oversold).

Signals:

• BUY. A rebound from the lower border or a breakdown from the bottom up of the middle line BB. Stochastic is moving up towards the overbought zone.
• SELL. Price from upper or middle BB. Stochastic is moving towards the overbought zone.
• Take Profit/Stop Loss. On opposite borders of the channel.

Important. The broker and market makers have direct access to the order flow. They see at which levels there are the most Stop Loss or unprofitable trades. If the hourly strategy works with small stops, they can be easily knocked out by even a small infusion of volumes in both directions, after which the price quickly reverts to the trend.

Summarize…

Beginners should always start with a demo account and basic technical analysis tools. They are tested by practice, described in detail in the literature, and training courses. If the results are consistently positive, you can switch to more complex instruments. The main thing is that the strategy is suitable for you in terms of trading style, money management, and comfort psychologically.