Tools for consistently profitable Forex trading
This section is designed assuming that the trader has familiarized oneself with the basics and practiced on MT4 platform according to the previous sections’ instructions. Although the strategies presented here are rather straight forward, their understanding and proper implementation requires knowledge of theory and trading mentality as well as MT4 software’s fluent usage. The idea of the website is, still, to present a clear step-by-step approach to Forex trading. This principle is not to be deviated from, by author or reader, also not in this section.
There are thousands of trading strategies available and as they are continuously being modified, the total total amount of alternatives is enormous. Most of them are based on several indicators and some may contain even more than 10 unconventional ones. At the beginner’s stage, traders (like myself, for instance) usually undergo a phase of continuous search for “better” strategy and “more reliable” indicator combination, that Forex market would abide every time – rather then studying the basics of technical analysis. Sooner or later traders understand, that there is no perfect indicator combination to get a 100% winning rate. The more exotic the indicator (and their combination) – the less traders are using it, and so, the chance of price following indicator’s signals is smaller. The right path is to go back to basic and consider the background of the price chart’s movement. Price chart moves according to specific principles and the force behind it is usually the professional traders of banks and trading companies with huge trade volume. Trading against them with some exotic, “fail-proof” indicator combination is sometimes described like this: “It’s like jumping in front of a freight train and trying to stop it”. Accordingly, it is clear, that in order to succeed, regular trader needs to adopt the professionals’ way of viewing and utilizing the market and chart. In this context, it is suitable to remind of a previously mentioned terms, like mental discipline, trend, price action and pivot points. The professionals make money particularly with these and definitely not with complicated combinations of lines and arrows, that fill the internet. Using few conventional indicators may clarify the situation the decision making moment, but still the basic behind price movement should always be considered primarily!
Things to consider when choosing and applying any strategy
The higher the TimeFrame (TF) the less trade possibilities there are, but they are more certain. Required SL-limit and potential profit also increase with the TF. Using the M5/M15 timeframes as a trigger-chart for higher TF enables more precise order confirmation and usually reduces the SL-limit. Low timeframe (expecially M1) scalping-strategies are difficult and mentally exhausting. They also require top notch, professional trading environment, which comes with higher costs. Scalping is most definitely not for the beginner traders.
At first, 2-3 (max. 5-6) currency pairs to follow. This way trader has enough time to analyze and fill the charts with required data, while getting used to each pair’s price movement habits. In the beginning, it is good to select suitable trading pairs from these major ones: EUR/USD, GBP/USD, AUD/USD, EUR/JPY, EUR/GBP, USD/CHF, USD/CAD, NZD/USD. Correlations between pairs and market sentiment should always be noted. Order is never to be placed against the ongoing sentiment, although the technical analysis’ conditions would be met.
If market has an evident risk-sentiment (see MarketView) it is wise to trade in that direction, using a currency pair with clearest confluence area. For example three analytical pictures with M15 trading strategy. Trader should also keep in mind market’s daily rhythm, may vary for different pairs, but generally it goes like this. It is wise to roll back the (M15 TF) MT4 history charts and to perceive the principle. Avoid trading during major news releases, as the price might jump 100 pips in seconds. Utilizing this possibility is discussed in NewsTrading section.
When trading on low TF (H1 and below) order should not be left open over the weekend. Monday morning’s session opening gap is sometimes over 50 pips and SL execution is uncertain during at that time. In daytrading, it’s worth noting the Average Daily Range. If the pair had already gone it’s ADR distance, the momentum is probably coming to an end.
Nearby situated, strong SR-areas, where price can change the direction, should be taken in consideration before opening a position. If the S/R is too close and the Risk/Reward is week – trade should not be taken. Respectively, these SR-levels (pivots, fibs, RN) present a good opportunity for taking partial profit of previously opened trade. Close, for instance, half of position and when the price get well pass the SR, move the SL to that S/R level and have a so called “risk free” trade after that.
Demo testing should be treated exactly the same as the live trading, otherwise it is basically useless. After completing 3-4 weeks of demoing, small live-account with minimum 0.01 lot positions will help practicing the trading mentality. No matter demo or live environment, trader should never try to guess or assume the price movement, nor trade the “may be” and “almost” -types of setups. Always await the exactly right situation, clearly defined by strategy rules – and react to it, according to those precise rules.
Good short TF strategy finds high probability setups, with rather small SL and drawdown. This means, that trader does not have to anxiously follow a heavily loosing position for hours, while trusting that the price will eventually turn. Opening a position with proven-to-be reliable strategy is never about guessing or being anxious, because trader knows the high win probability of exact trade conditions. Stress is reduced also by the fact, that if, for some unexpected reason, price goes the wrong way, the financial loss is minimal, due to a small SL. Good Risk/Reward ratio and small SL requirement enable larger and less risky profit, also with small starting capital. Aforementioned criteria and the trading principles of professionals are combined in the strategies here at fx-trading.fi. For that reason, presented strategies have proven to be certain and consistently profitable, for myself and thousands of others. To support and improve own use of chosen strategy it is good to check out the contents of Archive and Experiences sections, and follow the MarketView, if needed.
Technical confluence zones and price action (H1, Daily)
Certain and straightforward strategy of technical analysis, which main principles are widely used by professional institutional traders. It is very suitable as a base for reader’s own upcoming strategies, for instance at M15 timeframe. The idea is to make use of Price Action principle at the confluence area of common indicators and take a diligent high-probability position. First, examine different currency pairs at Daily TF and draw the most obvious/major trendlines and S/R levels. When, on some pair, price looks to be approaching those areas of interest – switch to H1 and patiently analyze the situation. In addition to previous ones, now draw the trendlines, S/R and possible fib-retracements (38.2%, 50.0%, 61.8%) for H1 timeframe. The idea is to draw the most evident ones, and if the level does not look completely obvious right away – do not draw it. When the levels are drawn and 2-3 of them happen to have a confluence area – make a trading plan and wait for price to come to that specific area and to react in expected manner. This stage is crucial and requires plenty of patience and self control. Plan the trade, trade the plan! Do not try to change predetermined trade entry conditions, do not guess or predict or in any way go ahead of things. Simply wait for the price to act according to the plan. When the pinbar confirmation signals the price to be going in required direction – order is opened by previously set pending order, 2 pips from the tip of pinbar. SL is usually set 2-3 pips from swing high/low pinbar’s opposite tip. Being well educated on money management (3% rule) trader calculates lot size according to the SL. If the pinbar dependant SL have to be set to far away and the capital and money management does not allow it – skip the trade and proceed to following other pairs for a while. Below is an actual trade example with explanation text. Chart 2 might be seen more clearly, if opened in browser’s new tab.
The H1 situation above (Chart 2) is a good example of the importance of setting the SL and the importance of patience at forex market. In this trade SL was 42 pips: pinbar’s tip + 2 pips to be safe. At first, price went 115 pips on a winning side, but then came back almost to SL limit. Many would have made a hasty decision and closed the position, not trusting in one’s original analysis. Price did not touch the properly set SL limit and continued to slide down after that rise. In this case, I utilized TP by closing half of the position at picture’s level (SL to Breakeven: SL is moved to trade’s original opening level, so that loosing is no longer possible). The second half of the position did slide down in this risk-free trade all the way until fib 0% level. This order gained, in two parts, total profit of 360 pips. Remarkable Risk/Reward ratio of 42/360 and approximately 1:8. Those types of setups are present every day, but if similar confluence + pinbar is found, the win probability is very high. Generally speaking, it is important to draw all the levels beforehand and wait for price to come there and to react the expected way. For visualizing the general trend it is good to use three EMA curves (10, 21 ja 50). Trading can be done with the main trend and, in some cases, also against it, which opens highly profitable possibilities of trend reversal. There is another trade sequence below, as a definitive example of utilizing confluence area and pinbar confirmation:
I learned this profitable strategy long time ago, by reading over 300 page long forum thread “Making Money Trading”. Trader behind this strategy (nickname: trader dante) claimed the strategy’s win ratio to be over 90% and that during 6 months he was able to grow his small investment by extensive 2811%, i.e. investment x 28. Later he became an institution trader for UK-based investment company, to trade his same strategy with huge lot size. From my own experience I can say, that strategy’s win ratio is indeed around 90%. Strategy generates consistent profit with rather little time and stress required, as long as you have enough patience to wait for only those 100% proper (not “almost) confluence setups – the most challenging part of this and many other strategies. Original thread with 318 pages can be found here. Most of forex trading basics on fx-trading.fi come from that thread, because they truly are a perfect foundation for any successful trading. I re-read the thread and made a compact yet comprehensive pdf summary with pictures and notes, for my own trading. File is now available with other extra content. This trader dante’s strategy is based on Confluence & PriceAction principles of widely known trader james16. Those principles are discussed in ForexFactory’s thread and especially at james16 trading group’s website.
Trend trading 3 SMA (M15, H1, H4)
Principles used by professional traders are combined also in this strategy. Trend is represented by 3 Movin Averages: 30, 50 and 100 SMA (not EMA). The confluence zone of technical indicators (trendlines, S/R levels, fibs, round numbers, swing high/low) is a decisive condition for making a trade. The idea is, once again, to trade only the favorable high probability setups, so that the required SL and possible drawdown would be low. Being so, also this strategy suits the beginners very well – their smaller capital and usually lower stress endurance. The potentially profitable confluence zones are looked for on higher TF, after that trade proceeds to lower TF to wait for a precise confirmation. There are two options for this, either H4->H1 or H1->M15. Trade only in the direction of an evident trend, when the 3 SMA curves are in correct order, not crisscross. When the price comes between 30 and 50 SMA – look for a confluence zone of aforementioned technical indicators, where the price should continue in the direction of an ongoing trend. When such are is found, switch to lower TF and await confirmation (1-2-3 pattern) of main trend continuation; as poetic as it sounds. The 1-2-3 principle is a so called Breakout, Pullback & Continuation (BPC), which goes like this: breakout of shorter TF’s counter-trendline | pullback in a direction of counter trend | continuation with the main trend; the breach of the pullback’s starting point is the entry level.
I properly understood the BPC principle only when I took time and effort to draw those lines; just reading the definition is certainly not enough! For myself, this strategy has proved to be reliable and profitable. Similarly to previously discussed one it has a win ratio around 90% and the required SL (while using the M15 for trigger) is sometimes as low as 10-20 pips. The benefits of “trend trading” is that when confluence setup is found and you manage to wait for a proper BPC confirmation – position is opened with peace of mind and it usually slides long distances with the ongoing trend. TP can again be performed in two parts: close half and move SL to Breakeven or/and use an automatic “trailing stop loss” tool.
Forex Factory’s thread about this strategy can be found here. There are almost 650 pages, but but is enough to read the first 5, where the basics are discussed thoroughly with clarifying picture examples. Additionally, it is worth reading the extensive summary done by another FF user. Strategy is, generally speaking, based on a trading principle by Hector DeVille. Hector probably begun as a professional and successful trader, but later on he switched to marketing of his paid courses and trading programs. For many years, there have been a first part of Hector’s paid course have been available on his website for free. It basically is this whole 3 SMA strategy. In that first part all the previously mentioned aspects are presented may be even more evidently. There are also videos with clarifying comments, which, in addition to trading principles, bring up Hector’s rather exotic pronunciation. More of strategy’s “official” presentation videos. Over 170 live-trade videos using Hector’s strategy can be found on Youtube channel (our reader’s tip). Based on my experience, all this free material is mostly very good and informative; it is well worth utilizing, if you are interested in this consistent 3 SMA strategy. Trader should not get drawn into all those paid courses and promotional tricks, but to concentrate on the essential free content, make use of it and move forward.
Pivot price action with indicators (M15)
Applying those, already familiar, basics and confluence principles, now on a lower M15 TF with addition of extra indicators. At first I would like to point out, that the idea of this strategy’s presentation is, above all, to demonstrate how to implement those extra “nonessential” tools into a valid, reasonable strategy; for instance to clarify the decision making moment, if needed. It also should be reminded, that the exotic tools, which could, in some cases, make trading more straightforward, should be used only as an addition to professional trading principles! Strategy discussed below has many things in-common with 1st and 2nd strategies of this page – follow the price at S/R levels and the confirm its’ the direction with Price Action principle. The idea is to use the setups, where on lower M15 TF price hits the S/R level and bounces back from it in the opposite direction, which actually is the direction of the higher TF’s trend. To simplify the analysis and decision making, strategy’s developer (FF’s user) has chosen set of indicators (Heiken Ashi, Semafor, Stochastic) which definitively set strategy’s trade requirements. The original strategy rules and description can be found here, below is an actual trade example:
Pictures make it evident, that you should analyze the trend definitely before using the indicators. You should also find a possible confluence area and wait for price to come there and to react in certain way. Indicators’ conditions met on M15 TF act as a trigger for trade. Third picture with the market’s situation at the time of opening a trade, is my own confirmation of an ongoing trend. The terms of market sentiment principle: risk appetite (risk on = USD goes down) ja risk aversion (risk off = USD goes up). You can read a compact description and check the constantly updated market conditions in MarketView section. Briefly put, at the time of that trade, there was a clear risk-off sentiment: all stock exchanges were red. USD was rising against EUR, GBP, AUD, NZD, CAD currencies. Accordingly, EUR/USD and the AUD/USD from the trade example, were going down. The basis of the trade were the confluence zone, the strategy’s indicators and the ongoing market sentiment – a very high probability setup, which is a pleasure to trade. Here is another explicit trade example, presented earlier on this page in risk-sentiment context.
Strategy as a whole can be found here. Thread contains few hundred pages. It is worth reading the first 9 pages and then, when the principle is understood, one could proceed to fresh posts in the end. Avoid reading the meaningless and heated debates, but concentrate on pictures and explanations. There are 5 rules in the original description, deciding the trend’s direction is left for trader’s discretion. From my understanding, the strategy’s author uses some technical analysis’ principles to verify it, but does not mention them, in order not to make the strategy seem too complicated. Originally I tried trading using only the 5 rather straightforward indicator rules, but the process still felt quite uncertain at times, bringing many unexpected losses. When, in addition to the indicators, I applied the basics of this page’s other 2 strategies (i.a. high timeframe analysis & confluence zone), also this strategy became profitable. That proved once again, that no matter how definitive and helpful the additional indicators are, the basics of professional trading should always be considered and applied. If not, the trading will inevitably end up troublesome and unsuccessful!
One the first page of discussion thread there is a zip package, with indicators and MT4 template. For my trading I ended up building a different MT4 template. It is more versatile and, I think, visually clearer (Chart 2, without fib levels). General coloring was changed to correspond the buy/sell buttons, better pivots indicator was utilized, handy currency pair’s dashboard was added. Use of trade management tool is very beneficial, also with this strategy. This trade management ExpertAdvisor (EA) enables trader to move SL/TP and other levels easily with mouse drag, instead of having to lookup and input numerical figures. It also has “close half position & move stop to BE / trail stop” settings. While trading, I sometimes set “close half & move to BE” level for opened position, leave the MT4 station and let the trade play out. EA gives a sound alarm, when the first half is successfully closed and when the trade becomes “risk free” with SL moved to BE. My own pdf summary of strategy’s FF thread, modified MT4 template and the EA with guidelines and usage tips can be found from the usual extra package.
Strategies discussed above present, separately or combined, rather certain and consistent profit for different trader mentalities. Can this really be the basis and the tools for success in forex market? Yes, and there is no reason to make the matter more complicated! Based on my own testing of tens of different strategy variations, it has become clear, that the basics presented above should be implemented, in order to trade with peace of mind and to make profit in a long run. In this page’s strategies basics are combined with definitive rules, which are easy to comprehend and apply. That precious time, that hasty beginner could now waste on skimming through other FF strategies, is better spent understanding and practicing the aforementioned basics. Doing so, after 3-4 weeks trader could start making small scale, yet consistent, live-trade profit – instead of still being on a search for next “indicator miracle” to demo trade. A choice for beginner trader to make: always new, promising and exciting tryouts or steady practice and systematic, profitable routine, day after day.
To summarize all the aspects which, according to my own and to read experiences, make trading profitable, no matter the strategy: mental discipline, higher time frame trend, market sentiment, technical confluence zones, price action, smaller time frame trigger charts, trailing stop, close half & move to SL to BE. Analyze the situation beforehand and patiently wait for a desired price behavior on a specific area of interest. After that, confirm the correct move direction and open the trade (manually or by previously set pending order), taking money management rules into consideration. Follow the previously set trade plan – precisely, without altering any aspects of it. Open only one trade at a time, at least through the first stages of trading career. When there is no 100% correct setup available – simply do not trade! The main reason for losses, also with reliable/proven strategy, is traders not having patience to wait for a required setup. They rather try to anticipate the situation and assure themselves, that the mediocre setup is enough “just this one time”. But it is not. Sometimes there are just days, when strategy’s exact conditions are never properly met. Especially on those days, hasty traders accumulate biggest losses, while ferociously blaming the strategy and trying to modify it.