We all know that forex trading is very popular market in the world which have daily turnover around more than 5 Trillion dollars. Traders consider that those market which have large liquidity is more profitable than other markets. And Obviously yes, forex trading market is one the biggest liquidity market in the world and you can make more profits in it. I am sure after knowing this you may get a question in your mind if it has huge liquidity market then why most of traders all over the world are losing money in it. Well the answer of this question is that forex traders are taking risk more in it and volatility in forex make it riskier. In this post you will know how to build the best forex strategy that is able to minimize risk and make more profits. So let’s begin.
These are other question which new traders should know before start building up trading strategy.
Is Forex Trading Profitable?
This type of question comes in mind of every forex trading beginners. They think whether they are able to make consistent profits in forex trading or not. It’s obvious that for new forex trader’s forex trading has some fear. But as I am forex trader and have experience for more than 5 years, I can make you sure forex trading is profitable If you apply the suggestions and recommendation provided in this post.
Forex trading is very risky and where there is risk there is more chance of losing and making profits. You definitely have right money management strategy to make your trading strategy successful for long period. We have written a complete post on money management rules. There you will know the 3 simple money management rules which you should keep in mind while trading.
Which Forex Indicators you should use?
Most of the traders consider MT4 as the best trading platform and also most of the forex brokers provide MT4 forex trading platforms so we can say it is used by traders all over the world. MT4 trading platforms have many technical indicators but here we are listing the top indicators which you can use them while making trading strategy. These are
Relative strength index (RSI)
You can use Relative Strength Index for knowing oversold and overbought level. It is a momentum indicator and has values are in range 0-100. When its value is above 70 then you can say market is overbought in the forex pair chart and when its value is below 30 then we can say market is oversold.
It is also like RSI indicator and used for knowing oversold and overbought level. It values range from 0-100 and when its value is below 20 then oversold and above 80 overbought.
Moving average is average of historical prices over a particular period. It is mostly use for finding trend in the market. When the current price is above it then we can say pair is in uptrend and when price below it then downtrend. 200 Moving Average is also acts as dynamic support and resistance.
Moving Average Convergence Divergence (MACD)
It is the difference of two moving average and have two lines fast and slow. Fast line is difference between 26 Day and 12 Day moving average and slow line is the signal line. When Fast line is above slow line, then watch for buy entries and when fast line is below slow line then search for only sell orders. MACD can be also being used for finding divergence in the pair for predicting trend reversal. When pair price is making higher high and MACD is making lower low then it is divergence. The opposite is also divergence when price is making lower low and MACD is making higher high.
To make your own best forex strategy, you must use all these indicators combinable. You should use one indicator for knowing whether market is oversold or overbought and other for finding trend like Moving average indicator.
In the coming section you will know about price action and money management which also play an important role in trading strategy build up.
Price action is movement of price in a chart. You have to look on the forex pair chart and have to find chart patterns like ascending or descending triangles etc., support and resistance areas and candlestick pattern for taking trade decisions. We have a dedicated post for support and resistance. You will know how to enter trades on these levels and use as exit strategy.
Forex trading is risky and without managing capital it will be riskier. Why most of the traders are not successful? This is due to the reason that they have not proper forex money management strategy. To sustain for long time in forex market you must include a good money management strategy with your trading strategy. Use risk reward ratio less than 1:2 and never lose more than 2% per order if your reserved trader and 5% per order if you are aggressive trader. Positive risk reward ratio makes your capital to grow even your strategy profit loss probability is 50%.
Forex trading is highly profitable if you have good strategies and trade with good money management. Without it you can be like other traders who loses large sum of money in short of period of time. They easily wiped their account or get margin call. Making of best forex strategy require basics information about forex and It takes time to make it a good strategy. Best Forex Strategy are made after completion of the following steps.
- Start with a good trading strategy.
- Consider all the above indicators, money management in your strategy.
- Check your strategy on demo trading account for at least six months.
- During the six months, find trading mistakes on strategy, find solution to solve these mistakes and never repeat the same mistakes.
- The completion of above steps will produce a best forex strategy to start trading on real account.
If you have suggestions and recommendation about this post, then contact or comment here. Happy Trading.