Strategies2018-11-27T10:06:25+00:00

Tools for consistently profitable Forex trading

This section is designed assuming that trader has familiarized oneself with the basics and, according to the previous sections’ instructions, has practised on MT4 platform. Although the strategies presented here are rather straightforward, understanding and proper implementation require knowledge of theory and of trading mentality, as well as the fluent skills in MT4 software. The idea of the website is to present a clear step-by-step approach to Forex trading. This principle should never deviated from, also not in the case of this section.

There are thousands of trading strategies available and as they are being continuously modified, the 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 stage, traders (like myself, for instance) usually undergo a phase of continuous search for “better” strategy and “more reliable” indicator combination, which Forex market would abide every time – rather than studying the basics of technical analysis. Sooner or later traders understand, that there is no perfect indicator combination with a 100% winning rate. The more exotic the indicator (and their combination) – the less amount of traders worldwide is using it, and so, the chance of price following indicator’s signals is smaller. The right path is to go back to basics and to consider the background of the chart’s movement. Price chart moves according to specific principles and the force behind it is usually the professional traders in 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”. It is clear, that in order to succeed, regular trader needs to adopt the professionals’ way of viewing and utilizing the market and the chart. In this context, it is good to remind 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 one could find in an amateurish forum post. Using some conventional indicators may clarify the decision-making moment, but still, the basics behind price movement is the primary thing to consider!

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. Correlations between pairs and market sentiment should always be noted. An order is never to be placed against the ongoing sentiment, even if the technical analysis’ conditions are 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. Also keep in mind market’s daily rhythm, which 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 profitable 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 that time. In day trading, 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 low – trade should not be taken. Respectively, these SR-levels (pivots, fibs, RN) present a good opportunity for taking partial profit of already opened trade. For instance, close half of position and when the price goes well pass the SR, move the SL to that S/R level and enjoy 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 positions will help practising 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 spots high probability setups with rather small SL and drawdown. Meaning that trader does not have to anxiously follow a heavily losing position for hours, while believing 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 exactly right 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 professionals’ trading principles are combined in the strategies of 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 to improve your use of a chosen strategy, do check the contents of Experiences and Advanced sections.

Technical confluence zones and price action (H1, Daily)

Solid and straightforward strategy with technical analysis. Its main principles are widely used by professional institutional traders. Strategy is perfectly suitable as a base for your own modified strategy, for instance at M15 TF. The idea is to make use of Price Action principle at the confluence area of common indicators, taking 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 price is approaching those areas of interest on some pair – switch to H1 and patiently analyze the situation. In addition to previous markings, 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 it 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 nor predict nor go ahead of things in any way. Simply wait for the price to act according to the plan. When the pinbar confirmation signals the price to be going in the required direction – order is opened by a pre-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), calculate lot size according to the SL. If the pinbar dependant SL has to be set too far away and the money management does not allow it – skip the trade and follow other pairs for a while. There is an actual trade example below, with explanatory text. Chart 2 might be viewed better opened in browser’s new tab.

The H1 situation above (Chart 2) is a good example of the importance of the SL setting and the 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 the own original analysis. Price did not touch the properly set SL limit and after that rise continued to slide down. 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 losing is no longer possible). The second half of the position slided down in this risk-free trade all the way until fib 0% level. This order, in two parts, gained a total profit of 360 pips. Remarkable Risk/Reward ratio 42/360 and approximately 1:8. Those types of setups are present almost 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 to 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 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 on, he became an institution trader for UK-based investment company and used the same strategy, but 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 there is enough patience to wait only for only 100% proper (not “almost) confluence setups. Patience during the “inactive” period is 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 did re-read the thread and made a compact yet comprehensive pdf summary with notes and pictures, originally for my own trading. File is now available with other extra content. The 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 favourable 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 searched for on higher TF and after that trader proceeds to lower TF awaiting 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 and 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 zone is found, switch to lower TF and await confirmation (1-2-3 pattern) of main trend continuation; nice and poetic. 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 complex definition is certainly not enough! For me, this strategy has also proven 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 a peace of mind and it usually slides long distances with the ongoing trend. TP can, once again, be done 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 over 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. Generally speaking, strategy is based on a trading principle by Hector DeVille. Hector probably began as a professional and successful trader, but later on he switched to marketing his paid courses and trading programs. Over 170 live-trade videos using Hector’s strategy can be found on Youtube channel (our reader’s tip) and they are worth seeing, if you are interested in this consistent 3 SMA strategy or some of its principles. My own MT4 template (.tpl) and utilized indicators (e.g. one that tells the trend of all pairs by 3 SMA bands) are included in extra package.

Pivot price action with indicators (M15)

Applying the already familiar basics and confluence principles – now on lower M15 TF with addition of extra indicators. At first, I would like to point out, that idea behind presenting this strategy’s is, above all, to demonstrate how to implement those extra “nonessential” tools into a valid, reasonable strategy. For example to clarify the decision-making moment, if needed. I should also remind, that the exotic tools, which, in some cases, could make trading more straightforward, should be used only as an addition to professional trading principles! Strategy discussed below has a lot in common with 1st and 2nd strategies on this page – it follows the price at S/R levels and confirms the direction with Price Action principle. The idea is to use 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 a set of indicators (Heiken Ashi, Semafor, Stochastic) definitively outlining strategy’s trade requirements. The original strategy rules and description can be found here, below is an actual trade example:

As it is clear from the pictures, you should thoroughly analyze the trend before using the indicators. You should also find a potential confluence area and wait for price to come there and to react in a certain way. Indicators’ conditions met on M15 TF act as trade’s trigger. Third picture is the market situation at the time of opening a trade. It is my own confirmation of an ongoing trend. The terms of market sentiment principle: risk appetite (risk on = USD goes down) and 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 AUD/USD from the trade example were going down. The base of the trade was a confluence zone, 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 a few hundred pages. It is worth reading the first 9 pages and then, when the principle is understood, you could proceed to fresh posts of last pages. Avoid reading the meaningless 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, strategy’s author uses some technical analysis’ principles to verify it. He does not mention them, probably 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), this strategy did become profitable. That proves 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 being troublesome and unsuccessful!

One the first page of the 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 colouring 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 look up 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 trade management EA with guidelines and usage tips are found in the usual extra package.

Summary

Strategies discussed above can provide, separately or combined, rather certain and consistent profit for different trader mentalities. Can this really be the base for success in a 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 must 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 to apply. The precious time, that hasty beginner could now waste on skimming through other FF strategies, is better-spent understanding and practising the aforementioned basics. Doing so, after 3-4 weeks you could start making small-scale, yet consistent live profit – instead of still searching for the next “indicator miracle” to demo trade. A choice for beginner trader to make: always new, promising and exciting tryouts or a steady practice and systematically profitable routine, day after day.

To summarize all the aspects which make trading profitable, according to my own and to read experiences: mental discipline, higher TF trend, market sentiment, technical confluence zones, price action, smaller TF trigger charts, trailing stop, close half & move to SL to BE. Analyze the situation beforehand and patiently wait for the 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 impatience 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 just are days when strategy’s exact conditions are never met. Especially on those days, hasty traders accumulate biggest losses, while ferociously blaming the strategy and trying to modify it.

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