What is the most profitable forex strategy?

The Templar knights were a group of Christian soldiers who, according to legend, searched for The Holy Grail in the 14th Century. The Holy Grail was a mystical relic said to have miraculous powers that provided eternal youth and happiness to those who drank from it. Like the knights back then, many people today are searching for their own version of the Holy Grail. They want a secure, fool proof way of gaining, happiness, success or even love, without having to dedicate themselves to working at these things consistently. The same applies to Forex. It is just basic science. Humans love an easy reward.

We can observe this in almost every forex trading forum that there is. There are literally hundreds of forum threads with traders, particularly beginners, who all want to find the most profitable forex trading system that they think will make them rich in no time if they learn it. They spend hours searching the internet, and even hand out large sums of cash to internet Forex scammers who convince them that they can sell them the perfect profitable trading strategy that will make them win every trade and make them rich. They quickly find out that this is not the case. In Forex, there is no Holy Grail.

Profitability – Profitable Forex Trading Strategies

So, we know that we just said that there is no Holy Grail in Forex trading. This does not mean that there aren’t any profitable forex strategies. The proof is in the pudding, rather, it is seen in the many forex traders in the world who have done so well for themselves that they trade Forex as their main source of income. So, what do these traders have that every other struggling trader does not?

Apart from discipline, they have awareness of what their strengths are and they stick to them.

Every Forex trader is different. We all have different personalities, different talents and different goals in life. This means that we all have different thoughts on what profitability means to us. For one person, it may mean a consistent way to earn a few more bucks a month on their day job salary. For another person, it may be a way to save up for retirement. For someone else they may see it as a way of being financially free from having to work a 9-5 job, meaning that they would become profitable only when they could replace their current salary. For the sake of this article, we will speak of profitability as the ability to consistently make profits over a period of weeks, months or years. This way of measuring profitability does not depend on any dollar amount like the others would have. Rather, it just means that you are making some gain in percentage on your money either every week, month or year and that your overall money increases steadily as time goes by.

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Every trader must keep in mind though, that his version of what profitability is, is what he should focus on. This will help him to make the right trading decisions, help to measure the amount of risk he is willing to take, and also choose the right trading strategy that suits his needs.

To find out what strategy will suit a trader’s personal needs and goals, he must consider the following:

  • The amount of risk he is willing to expose himself to for the period.

This means that he will need to set a particular risk reward:ratio for himself, for each trade that he takes. People who have more liquid finance available to them or who are more financially capable tend to risk more on their trades than those who do not. This means that they are more likely to take trades which have a lower risk:reward ratio. For an example, the trader who has a well paying 9-5 job, will be more likely to take a trade with a risk reward of 1:1, than a trader who is using this as the main means to save for his retirement. This trader would more likely make trades that have a higher risk reward ratio, where he can make higher profits at a lower risk exposure.

  1. The amount of stress that he can handle at any one time.

It is easier for high risk adrenaline junkies to take to trade scalping strategies with little problems. For a trader that is less inclined to take high risks or trading highly volatile time frames like the 5 min chart, he may be more comfortable using day trading strategies instead. A trader needs to be aware of the amount of stress that he is able to handle, because high stress will encourage traders to engage in behaviours that are bad to his trading. High stress will encourage him to enter his position too early, or too late. It may cause him to exit profitable trades early, and let his losing trades run for too long. A high stress environment may also increase the negative emotions like fear and greed, and affect the ability of a trader to stay disciplined to his strategy.

  • The amount of time that he is able and willing to spend looking at price charts each day.

This is usually one of the things that beginner traders do not consider important when they are first learning how to trade Forex. They think that following the popular way to trading regardless if they are able to commit to the hours involved is the way to go. It is self-explanatory why this is a foolish way to trade. If you cannot dedicate yourself to sitting diligently at your charts daily for extended periods of time, then short term trading may not be the right option for you. Scalping and day trading require long periods of focus. If you cannot give it, then you may want to consider trading the longer time frames like the daily, weekly or monthly charts.

Simple is the Way to Go – profitable strategy forex

The best forex strategy for any trader will be a simple profitable forex strategy. There are many different strategies that Forex traders can find on the internet to suit their tastes. The ones that work the best however are the ones that are the simplest to understand and to follow. Because there are different types of trading, it would be difficult to assign one trading strategy as the most profitable forex strategy. As such, we have gathered the most profitable strategies for each major type of Forex trading.


A very profitable forex strategy in scalping, is one which allows you to have many trade opportunities while offering for some amount of stability. The following strategy is fairly easy to follow and will satisfy the scalper who is looking for multiple trade opportunities during his sessions.

The High Low EMA

This scalping strategy is based on the 5 exponential moving averages, on the 5 min chart. To follow this strategy, a trader must first place the 5 EMA High, and the 5 EMA Low on his chart. He can choose any currency pair, but it must be noted that this strategy works best on a ranging market.

For this strategy, a trader will be looking for candles that open Above and Below the 5 EMA lines. If a candle opens above the 5 EMA High (the top EMA), then place a sell. If the candle opens below the 5 EMA Low (the bottom EMA), then place a buy.

The High Low EMA

As you can see, the 5 EMA High is marked in gold, and the 5 EMA Low is indicated in magenta. The trade opportunities according to the strategy are indicated by the blue marks. Note that not all the trade opportunities are highlighted, and that a few of the trades would have resulted in a small loss. This is typical of a scalping strategy. This is where trade volume comes into play. The majority of the trades taken on the chart would have been winning trades, and as a result the scalper would have closed the day with a profit.

Day Trading

There are quite a few day trading strategies that many Forex traders swear by. They all revolve around the basic three ways of day trading which are trend trading, counter trading and breakout trading.

The Moving Average Cross

This profitable forex trading strategy can be seen as a classic go to strategy for day traders. It is usually one of the first strategies and most simple strategies that Forex traders learn. For this version of the moving average cross we will be using three moving averages on the hour chart.

To follow this strategy a trader should set three moving averages to the following periods: 20, 60 and 100.

20 MA: fast moving average

60 MA: slow moving average

100 MA: trend line indicator

To produce a buy signal, the fast-moving average (20 MA) has to cross UP over the slow-moving average (60 MA).

To produce a sell signal, the fast-moving average (20 MA) has to cross DOWN below the slow-moving average (60 MA).

The Moving Average Cross

In this USDJPY H1 chart, the fast moving 20 MA is the yellow line. The magenta line shows the slow 60 MA. The green line is the trend indicator. As indicated by the area encircled in red, the 20 MA crosses down below the 60 MA indicating a sell signal. The price moves down in a strong bearish movement before tapering off when forming a double bottom pattern, which has been underlined in red. This is the area where it would have been wise to take your profit.

The Moving Average Cross

Again, we are looking at the USD/JPY H1 chart. As you can see the market made a sloppy cross over but this formed while the market was moving in a range. Therefore this signal has to be ignored. Using this strategy, any signals formed in a range formation can be dangerous to follow. They are not as reliable as signals formed in trends. The range broke, and the fast 20 MA crossed UP strongly over the slow 60 MA. The strong upward movement that followed is further indicated by the yellow arrow.

Another thing to note is that you can tell that the previous signal that formed in the range was not reliable, because the trend line did not change direction. Moving out of a down trend the green trend line was above both the 20 MA and 60 MA. When the signal was a clear one, the trend line dipped below the two moving averages.

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Swing Trading

As the name suggests with this type of trading, you will be looking for areas of weakness in the market, where price is more likely to swing. This means targeting areas of resistance, or areas where you think the price will retrace to, before continuing along the trend. Because swing trading is so highly dependent on the peaks and valleys of the market, knowing if the market is trending and the direction of the trend is essential with this type of trading.

It is therefore essential that any profitable forex strategy tailored to this type of trading be based on the support and resistance levels that price action creates, so that you can determine where the market will probably change trend direction, or retrace.

The 20 SMA Swing

The 20 SMA Swing

Like the above picture suggests this type of swing trading uses the 20 SMA line to determine the trade, and the Relative Strength Index (RSI) is used to measure the strength of the trend. It is noted that this type of system (like most swing trading systems) work best in a trending market. Also, unlike the typical swing trading strategy, it works very well on both the 4H and Day charts.

To follow this system, set your 20 SMA (simple moving average) and set your RSI to 5 days. Also put in the 50 RSI level on your indicator as well. There should be three horizontal lines on the RSI. These are the RSI levels. The 50 mark is in the middle, and this is the line we will be using to help relay whether the entries that we observe on our chart are strong enough for us to take.

To determine the direction of the trend we use the 20 SMA line. If the price is above the 20 SMA, then it is in an uptrend. If the price is below the 20 SMA, then it is in a downtrend.

With the RSI, we use it to determine when a rally is actually becoming a retracement. (When price bounces back.) The rules with the RSI are as follows.

  1. When the RSI peaks over the 50 RSI level and then starts to turn down afterwards, then it is indicating that the bullish trend (uptrend) is weakening and that you should be looking to sell soon.
  2. When the RSI pushes under the 50 RSI level and then starts to turn upwards after, then it is indicating that the bearish trend (downtrend) is weakening and that you should be looking to buy soon.

RSI level

To place a buy:

  • Price must be above the 20 SMA line in an uptrend.
  • Wait for price to retrace back down towards the line to touch it.
  • When the price has touched the line, or gone very near it, look at your RSI, to see if has peaked down under the 50 RSI level and has started to curve back up. If it has, then this confirms a now weak downward movement.
  • Place a buy order (a buy stop) above the high of the candlestick after it closes. The next candlestick should be one that starts to go up. Place your stop loss below the low of the previous candle.

As you can see with this chart, the areas circled in orange are viable buys that we identified with this strategy. Each of them would have rewarded about three times the risk that it took to make the trade, had we placed the buys.

The areas circled in pink, we would not have taken as they barely touched the 50 SMA line before returning up.

50 SMA line before returning up

To place a Sell:

  • Price must be below the 20 SMA in a downtrend.
  • Wait for the price to retrace back up towards the line.
  • When price touches the line, then look at your RSI. If it has peaked up over the 50 RSI level before starting to turn down, then we have confirmed weak upward movement.
  • Place a sell order below the low of the candle after it closes. Place your stop loss above the high of the candle.

As you can see with this chart (also the AUD/JPY on the daily period), the downtrend began at the area circled in blue. The areas circled in orange were retracements where we would have put our sell orders.

Choose Your Battle Axe

In Forex profitable strategy is similar to a weapon of war. You may not have the Holy Grail to solve all your problems, but you do have a choice of a well-crafted weapon. You have to choose the ‘weapon’ that you are more comfortable with and that is easier for you to handle, because it will be better for you in the long run. The same goes with trading. Choose the type of trading that you will be best at. The profitable forex trading strategy that we highlighted in each type of trading, if mastered, will be one of the greatest tools in your Forex knowledge base.

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