Table of Contents
The Best Forex Strategy (Part 1)
What the best forex strategy?
Unfortunately, most forex traders search for the ‘holy grail’ strategy to get rich quick!
I have news for you.
If you’re only interested in getting rich quick, you will fail at trading. Successful forex traders live and breathe the markets.
Is that you?
If the answer is no, I suggest finding something else to do with your time.
If the answer is yes, read on to find out the best forex strategy…
Forex is a business
To start, you must treat forex like a business to be successful.
For example, if you were starting an online business, what steps would you take?
The first thing to do is learn everything about starting an online business. You would then build a website, find products to sell, and promote them. You wouldn’t go out guns blazing, and spend thousands of dollars on manufacturing and advertising.
You don’t know what you’re doing and your business model isn’t proven yet.
You don’t know if there will be any interest in your products.
Forex is the same.
It will take time to become a successful trader ― more than you think. You have to be willing to put in the effort, learning and testing strategies. If you invest all your money at the start, similar to the above example, your business will likely run out of capital before you have a chance to work out how to run it.
If you’re serious about your business and willing to put in the time, you have a good chance at becoming successful.
New traders struggle because they think too much, rush, or have the wrong approach to forex.
Traders who don’t put in the time think forex trading is hard.
True, it’s hard to master.
But despite common wisdom, the most successful forex strategies are quite basic and based on common sense. Most unsuccessful forex traders overthink and make things complicated for themselves. Also, these traders don’t have a strategy that fits their personality ― scalping, technical, fundamental, etc.
Most successful traders have their own unique trading strategy ― one which fits their personality. I’ve tried scalping strategies and realised it’s not for me. I prefer short–term fundamental trading. It suits my personality and analytical mind.
Just realise there’s no best forex strategy.
There’s a million ways to make a million bucks…
You will realise this when you finish reading ‘the best forex strategy’ part’s one and two…
Best Forex Strategy: Fundamental analysis
If you love reading about macroeconomics and have an analytical mind, fundamental analysis is for you. Fundamental analysis can be tough to get your head around and has a steep learning curve. It took me around two to three years to connect the dots. Learning about economic statistics and news is the easy part. Understanding how the news impacts markets is the tough bit.
What news is important?
What can you ignore?
Learning about fundamental analysis can lead to information overload. But I believe you should adhere to the KISS concept ― keep it simple, stupid.
You don’t need to know about every economic statistic ― just the big things.
This advice will shave years off your learning journey alone, mind you…
When learning to trade forex with fundamental analysis, try to work out why certain currencies are expensive or cheap. Then, try to work out why those currencies move higher or lower.
Pay attention to breaking headlines.
What news moves currencies?
What news is unimportant to forex traders?
Many forex traders trade daily based on their predictions of events occurring.
But, it’s going to take time to be able to predict events ― you need to first learn how to connect the dots around the world.
For example, when extremely positive news is released, currency prices may end up falling…
The news has already been factored into the price.
Forex traders call this ‘buying the rumour and selling the fact’.
Some of the world’s most famous traders, such as Ray Dalio and George Soros, use purely fundamental analysis. They call these men ‘macro traders’. If only we spent more time trading macro in the early days, and didn’t bother with scalping, we would have shaved years off our trading journey!
Remember, fundamental analysis suits some traders…
But not all!
Other traders are more technical driven or computer minded.
Best Forex Strategy: Automated trading
Twenty years ago, most forex traders had a discretionary trading approach, such as fundamental analysis. In the modern world, expert advisers (EAs) or automated trading are becoming more popular when trading forex.
This trend will only grow.
If you are interested in computers, automated trading might be for you. Eventually, when computers get smarter, few traders will have discretionary strategies.
Jim Simons, the 78-year-old mathematician who founded Renaissance Technologies in 1982, is one of the richest men in the world. He put together the Medallion fund —the world’s most successful money-making machine. Over the past 30 odd years, the Medallion fund has made about US$55 billion in profit.
Unfortunately, we can’t invest in the Medallion fund ― it’s only open to Renaissance’s 300 employees, 90 of whom have PhDs in maths, computing or science.
Not to worry.
You don’t have to be Jim Simons to be a millionaire forex trader. You just need one profitable automated trading strategy to be successful. Lots of new traders go down the road of automated trading for this reason.
Here, forex traders build automated strategies to trade around the clock. They discover chart patterns and back–test strategies using computers. With in–built filters and criteria, testing and creating automated strategies has never been easier. You can purchase an automated strategy pre-made (i.e. EAs) or create one by yourself.
Most EAs or automated strategies (robots) don’t last long. The forex market is always changing. If robot A is doing well, more robots will figure out the strategy, which will lead to more competition.
Why do new traders use robots?
Some patterns and strategies work over the medium to long term.
That’s the idea of back–testing.
You can back–test your strategy manually or use a computer program.
Lots of traders don’t like the sound of back–testing because it’s tedious.
But it’s important work.
For people who want to back–test their strategies manually, you can sign up with TradingView. The paid platform has a ‘replay option’ for you to back–test strategies, so you can go bar by bar. It should take you an hour or so to go through a month or two of data. Don’t rush the process and click through bars. Try to understand what price is doing and see if you can forecast the next move to discover patterns.
If you’re more technically minded, use a computer program to back–test.
It’s not that hard these days.
For example, let’s say you want to back–test a strategy that involves buying the highest closing every 10 bars and selling five bars later. (We have no idea if it works.) You can code this using super–simple software like ProRealTime, or more complex software like Python.
Heaps of software is actually ‘click and drag’ and you just need to press a button to back–test your ideas.
You can back–test 10-20 years of data within a few seconds.
Why don’t more people do this, you ask?
Some people aren’t interested and think it’s too hard to learn.
That’s both true and false.
Back–testing your strategies using Python is complex. You need to learn how to code on Python. If you’re willing to go down that route, there’s plenty of YouTube videos available to learn. If not, just take the easy route and back–test using ‘click and drag’ software.
Forex traders like to adapt and improve their automated trading strategies as they evolve with the markets. That’s why learning how to code or use computer software can be useful to learn at the start of your trading journey ― even though it takes time, it can save you time testing and building more strategies over the long run.
Your ‘Start With Forex’ takeaway: Best Forex Strategy
There’s lots of forex strategies ― too many to cover in one article.
But what’s the best forex strategy so far?
You probably know what I’m going to say.
Do you like reading news, thinking about what will be the next move, and strategising? If so, trading a fundamental strategy could be for you. That being said, if you end up going down this pathway, consider whether you want to be a short–term trader or trade long-term ideas.
If you decide to go down the algorithmic trading pathway, consider whether you want to manually back-test your ideas or use software to do it. Remember, it’s easier back–testing strategies using computers than doing it by hand!
There’s no best forex strategy.
What’s your gut feeling telling you?
Listen to your instincts.
Find a best forex strategy that fits your personality.
Indeed, while we tried to give you some ideas on where to start and focus in this lesson, we didn’t explain how to master any forex strategies or setups. For now, we’re still learning about the many possible pathways to trade forex. In the next lesson, we’ll cover technical and sentiment analysis forex strategies.
If you want to trade purely off charts, the next lesson is for you!
So if you’re ready to learn about the best forex strategy for you, click here.
To your trading success,
Start With Forex
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