Best Winning Forex Trading Strategies & Techniques

Every successful Forex trader has a number of Forex trading strategies and techniques in their trading arsenal that gives them an edge, sort of an added advantage they capitalize on to make profitable Forex trading decisions.

Have you got any? Don’t fret if you don’t I am about to reveal to you the exact step by step formula I use to make profitable return on my investments every month consistently, using these exact same Forex trading strategies and techniques.

In the real world if you wanted to be an actor it would only make sense that you associate with big celebrities like the Brad Pitts, and the George Clooneys, because these actors have walked the walk and are already successful at their game, you’ll learn quite a lot from them in a very short space of time, with the proper guidance and assistance.

I use only one technical indicator which is the MACD indicator, and I use it primarily for MACD divergence, round figure numbers for support and resistance levels of regular horizontal support and resistance, candlestick chart patterns and formations and lastly Tom Demark TD trendlines for supply and demand trendlines which are usually sloping and rising trendlines respectively. 

I use the 15 Minute charts as my setup timeframe, and the 1 hour and the 4 hour charts for confirmation of a trade setup. Below I explain in great detail each and every component of My Best Winning Forex Trading Strategies and Techniques.

1.        MACD DIVERGENCE

    The MACD indicator is without a doubt one of the most invaluable assets in my Forex trading methodology. MACD divergence is the first condition I look to see play out before considering the likelihood of profitability of any given trade setup, triggered by the rules of my trading plan.

A MACD Divergence occurs when there is a non conformity in price action and the MACD indicator. An example of a MACD Divergence is when price is waving up making higher highs while the MACD indicator on the other hand is making lower highs instead of “copy catting” price action thus disagreeing with price, signaling a weakness in the momentum of buying pressure. 

When looking for a trade setup to take, the first thing I look to find is a MACD Divergence, The strength and consistency of the MACD indicator divergence in spotting profitable trade setups never ceases to amaze me, it works like magic.

Just like in the earlier example of price making higher highs and the MACD indicator making lower highs, for a complete trade setup signal to occur, I’ll like to see a strong hold of resistance at or very near a round figure resistance level, a candlestick formation such as a hammer, a hanging man or an engulfing candle and finally a breach of the TD Tom Demark Demand line before opening at short position at the close of the 15 Minute candlestick.                                                                                                                                                                                                

Do not feel overwhelmed if you do not understand all I just explained above I will cover each component in detail, I just want you to know that I do no just open a trading position because I spot a MACD divergence I always look to filter out the good trades from the bad ones using other tools in my trading toolkit for a sound trading decisions not based on emotions or whim, but rather on facts and a confluence of events.   

                      

    

In the 4 hour EURUSD chart above you can see I drew an upward rising TD demand line, this short trade turned out to be a winner, because after the MACD divergence, price halted at the 1.2850 round figure resistance level twice and a candle with a long upper shadow was formed followed by a hanging man and then a bearish engulfing candle and finally a trendline TD demand line breach.                                            

In the next example I show you a typical positive MACD divergence on the 4 Hour GBPUSD chart, where we have a positive MACD Divergence with a strong base of support right at the 1.8100 round figure support level, a spinning top candle signaling indecision agreeing with the weakening bearish momentum signaled by the MACD indicator and a very strong bullish reversal candle breaching and closing above the down sloping TD supply line, making for a nice move up and a profitable trade setup following my trading rules, and not second guessing my technical indicators.

            A positive MACD divergence occurs when price is making lower lows while the MACD indicator on the on other hand is making higher lows signaling a potential reversal or weakness in the strength of the bearish move in price, depending on the direction of the major trend of the currency pair in question.     

            Whichever side of the market I wish to take on I like to be taking trades in the direction of the established trend on the long term chart time frames of the currency pair I choose to trade, I do not risk more than 2% of my account balance on any single trade and I always manage my stops and profit targets as directed by My Forex Trading System Rules. 

            Don’t just open trades because you spot a MACD Divergence, always look for a confluence of events, remember price is the number one indicator we follow its leads, do not force a trade or trade or try and fight the market because you will inevitably lose.

2.      ROUND FIGURE SUPPORT AND RESISTANCE LEVELS             

Round figures levels have proven to provide strong support and resistance for certain price movements. The idea being, when in an up move for instance, price action is expected to pause or reverse at specific round figure level for the particular currency pair you’re analyzing.

 For instance, say price is currently on a bullish run up but currently trading at the 1.8412 level on the GBPUSD chart, it is expected that price action might halt and reverse or at least consolidate at the 1.8500 price level because the .00 levels or the hundredths levels as they are popularly called have been know to provide the strongest support and/or resistance levels. which in this case actually turned out to be true on the GBPUSD chart as indicated in the image below.

Looking at the above image we see that price actually respected the 1.8500 level causing the formation of rejection candlesticks like the spinning to followed by the hammer with the highest high just a few pips shy of the 1.8500 level and finally a strong red bearish change of direction candle right after the price rejection at the 1.8500 level on the GBPUSD chart.

After the sizeable swoon in price, buyers bid it back up aggressively possibly for some reason justifiable to them, but guess what happened, bang! Again, price had serious issues crossing the 1.8500 round figure resistance level. It made it a bit higher this time though but, the momentum wasn’t strong enough to take price to the next stronger round figure level which is the .50 level.

And by this time we would have been looking to open a trading position with some more confirmation, because MACD divergence was already obvious, we had a railway track candle formation in an around a known strong resistance level, all this were strong indications of a bearish move all we needed was a TD demand trendline breach to jump right in. 

The .00 otherwise called the hundredths levels are known to provide the strongest support and/or resistance levels followed by the .50 levels and then finally the .25 levels consecutively. A common misconception is in what these levels represent, the .00, .50, .25 levels are the price levels ending with these numbers as price action happens. 

For example the price 1.8525 is a .25 level, the price 1.8550 is a .50 level and the price 1.8500 is a hundredth or .00 level. This is because the prices end with this numbers as suffixes this can be rephrased as the last two digits in the quoted price representation ends with these numbers respectively.    

As a fact, the order of strength (Resistance or Support) provided by these round figure levels represented from the strongest to the weakest in the chain goes like this

The Hundredth level (.00)---- The Fifty Level (.50)---- The Twenty Five Level (.25)

I use the round figure levels in my everyday trading because they are very powerful and important components in my trading arsenal, they are one of the closely guarded secrets in my hand written Forex Trading plan, I strongly advise that you do the same, because these have proven to work timelessly and I must add very effectively. Below is an image of another example of a strong support provided by a round figure .00 level on the GBPUSD 4 Hour chart.

3.    CANDLESTICK CHART PATTERNS AND FORMATIONS

Candlestick charting techniques have revolutionalized technical analysis trading in the western part of the world with good reason. A Japanese rice trader by the name of Homma was first to use candlestick charting techniques and soon other traders adopted his methods finding it later on to be a priceless asset in their trading toolkit.

Steve Nison was the noble one to research hard and wide for years to introduce the Japanese candlestick charting techniques to the west, big thanks to his selfless devotion, thank you Steve.

Candlestick chart patterns appear everywhere on the chart almost always, signaling the strength or weakness in the momentum of a price move, consolidation or even a price reversal. If you are a newbie to Forex trading or candlestick charting, they might prove a little hard to spot but as you get better and gather a little bit of experience in the business, you’ll be able to spot them on most every currency pair’s chart with great ease. Below is an image of the anatomy of a candlestick.   

There are a myriad of candlestick chart patterns and formations but personally I use and focus my attention on what I like to call the Most Powerful Five in my Forex Trading Methodology. Below I list the Most Powerful Five Candlestick Patterns and Formations, as I like to call them, that I use in My Forex Trading System;

A.    Doji

B.    Hammer

C.   Hanging Man

D.   Railway tracks

E.    Spinning Tops

A.   The Doji Candlestick

The Doji candlestick is a cross shaped candle with a wick or candle shadow of varying length above and below the real candle body, signaling an indecision in price and consequently the overall market sentiment. The open and the close price of the doji candlestick is almost or in most cases even the same as the close price, thus the thin real candle body of the doji candlestick. 

When a doji candle appears at the end of a long run up or down, it usually signals a possible reversal or the beginning of a consolidation, marking either the end of the prior move up or down and a possible price correction (Retracement) to be followed by a continuation of the previous move (Extension) or simply a trend reversal with price looking for newer levels to trade at altogether.

 

In the images above you can clearly see the doji candle prior to the reversal in price direction. But take note, a doji candle is only important when it appears at the end of a run and within the Forex Trading Sessions with considerable amount of volatility. You’ll see a lot of doji candles when most of the active Forex Trading Sessions are either closed or close to ending, so be careful when analyzing a chart before opening a trading position, always remember to look for a confluence of events and not just basing your trading decisions on any single particular indicator, okay…? 

A.   The Hammer Candlestick

The hammer candlestick usually appears at the end of a long run and it usually signals a possible change in the market sentiment and the direction of any currency pair. The hammer candle is a very powerful candlestick that accounts for a fairly consistent degree of accuracy in technical trading and candlestick charting techniques.

The hammer appearing at the end of a bullish run up is called the inverted hammer while that which appears after a bearish swoon in price is the regular hammer. 

A regular hammer is formed when price swoons after a candle open and fails to close at the lowest price achieved within the given time period of the candle after sellers bid price down aggressively, only for buyers to take over and bid price back up making for a failed breach of support, a candle with a long lower wick and a small candle body and a close price slightly above or below the open price of the hammer candle in question. 

An inverted hammer however, is formed when a candle opens at a low price and makes a convincing move up but fails to close at the highest price achieved within that time period after buyers bid price up aggressively, only to be brought back down to close near the open price or slightly above/below the open price making for a long candle with an equally long upper wick, a very small relative candle body and little or no lower wick.  

          In some cases the opening prices of the hammer candlesticks are the lowest/highest price for the particular hammer candle as the case may be. The significance of the hammer candlestick lies in its ability to indicate, at a glance, the current weakening or slowing momentum of the prior move to the hammer formation, signaling a change in the market sentiment and a potential turn around in the direction of price action. Below are some examples of hammer candles appearing right before a change of direction in the market conditions. 

Like I always say wait for a confluence of events before making any trading decisions don’t just place a trade because you spot a hammer candle on the chart, always, always, always wait for a confluence of events before making any conclusive trading decision.

A.   Hanging Man

A hanging man candlestick is formed when a candle opens at the highest price of a preceding bullish candle, for instance, and fails to edge higher to test resistance, instead sellers bid price low aggressively causing for a sharp down move but again failing to hold price down to close at the lower regions, only for buyers to step back into the market bidding price high once again to close slightly below the candle open price. 

A bullish hanging man candle has a long lower wick or candle shadow, a relatively small candle body and little or no upper wick or candle shadow. The hanging man indicates a slowing momentum of the previous up move and the possibility of a reversal in the direction of price action or the beginning of a price consolidation.

Just as we consider the appearance of a hammer, or a doji, to be significant when it appears at the end of a run, the hanging man candle is no exception to this golden rule. When a regular hanging man candle appears at the end of a bullish run, you should get ready to jump into the market with a sell trade only when your other technical indicators agree with the impending price move.

When an inverted hammer candle appears at the end of a bearish run down, you should also prepare to get into a buy trade, after seeking confirmation from the other technical indicators in your Forex trading toolkit, always look for a confluence of events before making a conclusive trading decision as this will help to reduce your overall loosing trade, and help preserve your Forex trading capital.

 

A.   Railway Tracks Candlestick Formation

A hanging man candlestick is formed when a candle opens at the high or low of a preceding candle, a bullish candle for instance, but fails to go higher or lower as the case may be, breaching resistance or support, instead in the case of the bullish hanging man candle sellers bid price low aggressively causing for a sharp swoon or downward move, but again failing to hold price at the lower regions to the close, buyers then step in again and bid price back up but still failing to close above the open or the highest price of the candle, thus making for a small real candle body and a long lower wick, consequently forming a hanging man candlestick.

Hanging man candle represents a change in market sentiment and also a weakness in a move, thus warning for a possible reversal or the beginning of a consolidatory move. Just like we have the hanging man appear at the end of a bullish run up, we also have the inverted hanging man appearing at the end of a bearish move. Below is a picture illustration of a hanging man candlestick.

RAILWAY TRACKS CANDLESTICK PATTERN

This is a very powerful candlestick formation which usually occurs at the end of a run. This pattern is formed when there’s a change in the market sentiment. For instance, in a bullish move buyers bid price up aggressively but when the currency pair is confronted by a strong resistance level that holds, price stops and begins to head downwards signaling a reversal.

The longer the body of the bearish candle sizes up against the preceding bullish candle, the stronger the reversal signal it represents.

Guys, I cannot stress this enough, this candlestick patterns are very powerful but never base your sole trading decision off of them, look to your other indicators for concord and confirmation such as the MACD Indicator, Trendline breach, the proximity of round figure support and resistance levels and so on. Confluence of events that is what you’re looking for, okay? Below is a picture of a railway track candlestick formation.

SPINNING TOP CANDLESTICK PATTERN

This candle also signifies indecision in the market sentiment it is represented by a candle with a relatively small real body and an upper and lower wick of almost equal length. The real body of a spinning top candle is usually centrally placed and very small. A spinning top candle is a warning signal of an impending reversal or a possible retracement or consolidation. When supported by other indicators the appearance of a spinning top at the end of a run can make for a very good reversal trade setup. Below is a picture of a spinning top candlestick pattern. 

TRENDLINE ANALYSIS

Trendline analysis has been one of the most trusted indicators in my trading arsenal. After a MACD divergence and a corresponding candlestick pattern and formation with respect to support and resistance levels, I look to see a convincing Trendline breach for further confirmation.


To add to this, a very conservative approach to opening a trading position occurs after waiting for a Trendline breach and then opening a market order directly above or below the Trendline a couple of pips away, but wait for the candle causing the trendline breach to close before placing any trade, ideally, wait for the candle next to the candle causing the breach to open before placing a trade.

This can be done by placing a pending order to enter the market above the highest high of the candle breaching the trendline (i.e. the Tom Demark supply line after it closes, and doing the exact opposite in the case of an upward rising Tom DeMark TD Demand line).

Do not fight the market because that would only be suicide.
Swing points are used to place stop loss orders after opening a trade satisfying our trade entry setup requirement which are based on a confluence of events as stated earlier in this blog post. Below is a picture of a typical swing point example.



TOM DEMARK DEMAND TRENDLINE

The TD Tom Demark demand line is an upward rising trendline connecting a lower swing point/fractal to the next nearest and most recent higher swing point/fractal, thus making for a rising trendline.

A fractal or a swing point is a candle with the lowest or highest wick, as the case may warrant, lower or higher than the highest high or lowest low of the wick of neighbouring candles surrounding it. Below is an example of a TD Tom Demark Demand trendline on a EURUSD chart.






TOM DEMARK SUPPLY TRENDLINE

A td Tom Demark supply line is a downward sloping trendline drawn by connecting the most recent low swing point/fractal to the previous most recent swing point/fractal, thus making for a downward sloping trendline. Below is a picture of a properly drawn TD Tom Demark supply line on a EURUSD chart.

A trendline breach is a very strong requirement to look for before opening any trades, but as always other trading indicators must agree before we make any conclusive trading decision, because waiting for a confluence of events before making trading judgments makes for a higher percentage of winning trades, than just jumping into the market to get a piece of the action because one of the technical indicators in your trading toolkit says so.

Professional traders know this, that is why they let price lead the way and they follow.  


 

5.       AVERAGE DAILY RANGE

Most currency pairs exhibit a characteristic behavior known as the average daily range. This is a fairly consistent number of pip movement travelled by a particular currency pair resulting in a range, from the highest high to the lowest low achieved by price action in a specified period of time, mostly a 24 hour period from the start of a given Forex Trading Session to the reopening of that same trading session.

Below is a tabular illustration of the average daily for the major currency pairs in the Forex market with respect to the trading sessions in question.

AVD TABLE PIC

When armed with the knowledge of the fairly consistent average daily ranges of specific currency pairs within any given trading session, one can make an educated guess of how far price is going to go, after you must have determined what direction price plans to take, you could be guided by the average daily range of any currency pair in any trading session when making critical trading decisions such as where to place stop losses and take profit targets, and also how to manage your trading position, with either an auto MT4 set trailing stop you choose or manually changing your stop levels to cover some profits or minimize losses, within any given trading session.

Add this to your trading arsenal and you are well on your way to increasing the number of wining trades you’ll have in your trading career.

6.       FOREX TRADING SESSIONS

A typical Forex Trading day starts at the open of the Australian markets then the New Zealand session, and then followed by the Asian session which is in turn followed by the Frankfurt session, then the London Session and lastly the New York Session.
But the session known to show the most volatility is the London session. An increase in volatility is usually experienced when two different trading sessions overlap with each other like when the London and New York sessions overlap, or the Asian and the Australian sessions. The image below expresses this fact pictorially for ease of understanding.

PIC OF TRADING SESSIONS OVERLAY

It is worthy of note that even though the Forex Trading Market is a 24 hour market not all trading hours offer the best and most profitable trading opportunities. I personally prefer to trade the London Session but if you cannot trade in the middle of the night like an owl because you have a day Job, you can chose to trade the Asian session with some pretty volatile and liquid exotic pairs like the Euro Yen EURJPY or the pound Yen GBPJPY.
If you’re having problems computing the corresponding opening and closing hours for respective trading Sessions for your time zone I recommend that you use this nifty little Free tool to do just that for you automatically, saving you a lot of stress. Here goes the Forex Trading Times Calculator.

7.0     MULTI –TIME FRAME ANALYSIS

Basing trading decisions off of a single time frame chart is recipe for disaster. Multi Time frame analysis does not only help save you from whips saws and false trading signals, it also helps you see the big picture, the longer term trend of the particular currency pair you’re trading and it also helps you to confirm a trading signal you see on a smaller time frame chart or vice versa.

Multi-Time frame analysis helps you know if the move you see on a lower time frame is an extension or a correction of a prior price move (i.e. if the move is a trend or a counter trend move).

Generally what Professional Forex traders do is they seek confirmation for a trading signal they see on their Setup Time Frame which is usually on a lower time interval chart to the higher interval time frame chart they use for confirmation.

Assuming the 1 Hour chart is your setup time frame, when you see a weakening in momentum for the previous strong down move causing a MACD Divergence and a strong round figure level of support holding at say a .00 Level followed by a Hammer and a Railway Track candlestick formation signaling a possible reversal or consolidation, then finally a Trendline breach, you would want to check the 15 Minutes chart to see how price interacted with the .00 Level support as it approached it, and also the type of reversal candles formed like the Hanging Man Candle or The Spinning Top Candle, confirming the move on the 1 Hour chart for a price reversal, and you would also see that MACD histograms slowing, getting shorter and shorter wanting to head north on the higher time frame chart like the 4 Hour chart supporting the move forecasted from the setup given by the hourly chart, before finally placing a trade after a Trendline Breach.

Below are the Pictures of the 15 Minutes, 1 Hour, and 4 Hour Charts for a Trading Signal all agreeing with the up move signal presented by the 1 Hour Chart.

UP MOVE CONCORD 1 HOUR CHART PIX (15MINS, 1 HOUR, 4HOUR)

8.       FUNDAMENTAL NEWS RELEASES

There has been a lot of debate on the topic of whether traders should trade solely off of Technical or Fundamental Analysis. I’d rather not take sides on the subject; instead I incorporate the two types of approaches to trading in my profitable Forex Trading Tool kit and I suggest you should too.

Basically, what I do is I note the days holding the most high impact news releases on my calendar so I always know before hand how to go about managing my open trades or how careful I should be considering opening trade positions offered by my Forex Trading System.

Before high impact News releases the market tends to be quiet, ranging and in a state of consolidation as every trader is not willing to be exposed to the market conditions after whatever effect the Fundamental News data might exert on the market, so traders prefer to either wait till after Fundamental News releases before opening trading positions or not even trading days with high impact News altogether.

The consolidation and ranging conditions of the market before the Fundamental data is received makes for good trading opportunities after the News Release has exerted its impact on the market forces, breaking previous support and resistance levels with great amount of momentum depending on the surprise effect the Fundamental News Data leaves on Speculative Forex Traders. 

So, we could say the more the surprise concerning a released figure of a Fundamental Data release (for example the Non-Farm Payroll), the more the volatility that will be experienced within such times.

Make it a habit to always check ForexFactory.com, my favourite news website offering daily news releases on high, medium and Low impact consensus at the corresponding times the figures are expected to be released. 

They also explain what the news to be released offers in terms of relevance and importance and also the possible market reactions to be expected plus which currency pairs would make for the most movement and thus the most profits.

9.       MONEY MANAGEMENT

Money management is one of the most important aspects of trading that is often overlooked by newbie Forex Traders struggling to make profitable trades in their quest for quick and easy Forex riches.

I risk only a maximum of 2% of my account equity on any single trading position and nothing more, no matter how many variables support my trade decision because trading is not a game of how right you are, rather, it is a business of preserving capital and should be treated as such, so you even if you lose a trade today, you can live to win back your losing and even netting a handsome profit after all. 

Never risk more than 6% of your account balance in any given trading day. If you spot 6 profitable Trading setups on 6 different currency pairs you can choose to trade only 3 of them risking 2% of your account balance like I said, or you can cut down your risk per trade to 1% on each trade and then take on the 6 trades without loosing more than you can afford to loose.

You’ll agree with me that it is easier to make more rational trading decisions when you are not confronted by enormous floating losses and possible margin call on your trading account. Making trading a lot less stressful and a Fun way of making money, which is why we all signed up for Forex Trading in the first place, isn’t it? ;-D

10.     MINDSET

A positive attitude to trading can break barriers you never knew existed. With the right attitude you can become the profitable trader you’ve always dreamt of becoming.

The mind and the Self Perception you feed into it has a very strong influence on your actions. If you think you are a lousy trader, in effect you will be a bad trader. It’s that simple, yet it’s the reality of things.

A positive self image acts exactly the same, only in this case the subconscious influences your decisions to realize your perceived self image as a god trader and also directs your actions to realize this perception, making it a reality, by making educated trading decisions, refraining from too much of your hard earned trading capital on any single trade, keeping out emotional trading which can be detrimental to your trading success.

The field of Psycho Cybernetics goes way beyond the world of Currency Trading under the topic of Forex Trading Psychology. It never ceases to amaze me, the power of the human mind in making a person successful with the proper ingredients of Focus, Commitment, Persistence and Education or making the Negative minded people miserable for an entire life time.

Never over look the power of a positive mindset and attitude in your Forex Trading Plan, haven’t I stressed this enough folks? Heheheh

Looking forward to hearing your comments and interacting with you guys, don’t forget to add something of value if you have any to offer, or point out one or two things you think might not be helpful in this blog post, ask me any question you please, I’d love to help.

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Yours in Pips Harmony,
Anas Abba.