Price action Forex strategies are the currency trading strategies that do not use any chart or fundamental indicators but instead are based purely on the price action. These strategies will fit both short-term and long-term traders, who do not like the delay of the standard indicators and prefer to listen as the market is speaking. Various candlestick patterns , waves, tick-based strategies, grid and pending position systems — they all fall into this category:.
Fundamental Forex strategies are strategies based on purely fundamental factors that stand behind the bought and sold currencies. Various fundamental indicators, such as interest rates and macroeconomic statistics, affect the behavior of the foreign exchange market. These strategies are quite popular and will benefit long-term traders that prefer fundamental data analysis over technical factors:.
It is very important to test your trading strategy before going live with it. There are two ways to test your potential trading strategy: backtesting and forward testing. Backtesting is a kind of a strategy test performed on the past data. It can be either automated or manual. For automated backtesting, a special software should be coded. Automated testing is more precise but requires a fully mechanical trading system to test.
Manual testing is slow and can be rather inaccurate, but requires no extra programming and can be done without any special preparation process. Any backtesting results should be taken with a grain of salt as the tested strategy might have been created to fit particular backetsting historical data. Forward testing is performed either on a demo account or on a very small micro live account.
During such tests, you trade normally with your strategy as if you were trading your live account. As with backtesting, forward testing can also be automated. In this case, you would need to create a trading robot or expert advisor to execute your system. Of course, with discretionary strategy, you are limited solely to manual testing. Forward testing results are considered to be more useful and representative than those of the backtests. Regardless of how you decide to test your strategy, you need to understand the results you get.
Intuitively, you would want to judge the results according to strategy's profitability, but you should not forget about other important parameters of successful trading strategies. They are: low drawdown sizes, short drawdown periods, high probability of winning, high average reward-to-risk ratios and big number of trades. Ideally, your system should earn equally well on bullish and bearish trades, the resulting balance curve should be consistent and uniform, without significant drops or long flat periods.
If you are using MetaTrader for backtesting or forward testing, you can use our report analysis tool to better understand the strong and weak sides of your strategy. If you want need information on currency trading strategies or need some additional examples of working strategies, you are welcome to browse our e-books section on strategies to learn from completely free downloadable e-books. You may also choose to read some articles from our strategy building section to improve your knowledge of the subject.
If you want to share your Forex trading strategy with other traders, or want to ask some questions regarding the strategies presented here, please, join a discussion of the Forex strategies at the forum. What Is Forex? A few years ago, driven by my curiosity, I took my first steps into the world of Forex algorithmic trading by creating a demo account and playing out simulations with fake money on the Meta Trader 4 trading platform.
Spurred on by my own successful algorithmic trading, I dug deeper and eventually signed up for a number of FX forums. Soon, I was spending hours reading about algorithmic trading systems rule sets that determine whether you should buy or sell , custom indicators , market moods, and more. Around this time, coincidentally, I heard that someone was trying to find a software developer to automate a simple trading system.
This was back in my college days when I was learning about concurrent programming in Java threads, semaphores, and all that junk. The client wanted algorithmic trading software built with MQL4 , a functional programming language used by the Meta Trader 4 platform for performing stock-related actions.
The role of the trading platform Meta Trader 4, in this case is to provide a connection to a Forex broker. The movement of the Current Price is called a tick. In other words, a tick is a change in the Bid or Ask price for a currency pair. During active markets, there may be numerous ticks per second. During slow markets, there can be minutes without a tick. The tick is the heartbeat of a currency market robot. When you place an order through such a platform, you buy or sell a certain volume of a certain currency.
You also set stop-loss and take-profit limits. The stop-loss limit is the maximum amount of pips price variations that you can afford to lose before giving up on a trade. Many come built-in to Meta Trader 4. However, the indicators that my client was interested in came from a custom trading system.
They wanted to trade every time two of these custom indicators intersected, and only at a certain angle. The start function is the heart of every MQL4 program since it is executed every time the market moves ergo, this function will execute once per tick. For example, you could be operating on the H1 one hour timeframe, yet the start function would execute many thousands of times per timeframe.
Once I built my algorithmic trading system, I wanted to know: 1 if it was behaving appropriately, and 2 if the Forex trading strategy it used was any good. In other words, you test your system using the past as a proxy for the present.
MT4 comes with an acceptable tool for backtesting a Forex trading strategy nowadays, there are more professional tools that offer greater functionality. To start, you setup your timeframes and run your program under a simulation; the tool will simulate each tick knowing that for each unit it should open at certain price, close at a certain price and, reach specified highs and lows.
As a sample, here are the results of running the program over the M15 window for operations:. This particular science is known as Parameter Optimization. I did some rough testing to try and infer the significance of the external parameters on the Return Ratio and came up with something like this:.
You may think as I did that you should use the Parameter A. Specifically, note the unpredictability of Parameter A: for small error values, its return changes dramatically. In other words, Parameter A is very likely to over-predict future results since any uncertainty, any shift at all will result in worse performance. But indeed, the future is uncertain! And so the return of Parameter A is also uncertain. The best choice, in fact, is to rely on unpredictability.
Often, a parameter with a lower maximum return but superior predictability less fluctuation will be preferable to a parameter with high return but poor predictability.
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This technique is predicated by myself expertise, in the intervening time I actually am engaged on this know-how and get a good revenue. In the identical archive is a desk file forex. Due to this fact, we exclude non-trading dangers and commerce solely with dependable ones.
The desk provides you two orders: one for promote promote , the opposite for purchase purchase , and, accordingly, Cease Loss and Take Revenue. In keeping with these information, you place two purchase and promote orders with stops within the quantity of 0. As quickly as one of many orders opens, the second have to be deleted. Now you might have two choices for the end result: both a plus or a minus. If it closes with a plus, you then act additional in the identical method, once more the info of specialists within the desk and two orders for 0.
If it closes by minus, then additionally enter the most recent information of consultants within the desk and place two orders, however by 0. Then you might have two extra outcomes. Whether it is a plus, you then enter the most recent information into the desk and place two orders for 0. Whether it is a minus, then enter the most recent information within the desk and place two orders at 0.
And so on. Under I give one other desk for orientation within the variety of tons. The objective of forex trading is to exchange one currency for another in the expectation that the price will change. More specifically, that the currency you bought will increase in value compared to the one you sold.
An exchange rate is simply the ratio of one currency valued against another currency. The reason they are quoted in pairs is that, in every foreign exchange transaction, you are simultaneously buying one currency and selling another. Whenever you have an open position in forex trading, you are exchanging one currency for another. The base currency is the reference elemen t for the exchange rate of the currency pair.
It always has a value of one. The second listed currency on the right is called the counter or quote currency in this example, the U. When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy ONE unit of the base currency.
In the example above, you have to pay 1. When selling, the exchange rate tells you how many units of the quote currency you get for selling ONE unit of the base currency. In the example above, you will receive 1. The base currency represents how much of the quote currency is needed for you to get one unit of the base currency.
With so many currency pairs to trade, how do forex brokers know which currency to list as the base currency and the quote currency? Just know that this is a matter of preference and the slash may be omitted or replaced by a period, a dash, or nothing at all. They all mean the same thang.
You can buy a system or get one for free. You can build a system or modify one. You will find thousands of free and paid systems online, and you will discover. Forex strategies — learn simple and complex Forex trading strategies and systems; Forex strategies based on standard indicators, price action Forex. Step 1: Time Frame The first thing you need to decide when creating your system is what kind of forex trader you are. Are you a day trader or a swing trader?