In today forex faq, we have a question from our fellow readers asking me which is the most profitable forex strategy to use and below is his question
Hi Kelvin, which is the most profitable strategy to use in trading?
If you were to ask me for the most profitable strategy to use, I can only think of trend strategy as the best to use. So let me point out several reasons why I think the trend strategy is still the most profitable strategy to use.
1) The Trend is your friend
If you have been reading up forex books or taken any forex courses, you will see this phrase several times. I find that most new traders tend to trade against the trend most of the time and this is also one of the reason why they tend to lose most of their money when they first started to trade.
In fact, I used to do that as well when I am new to forex trading. When I see the price moving in a particular direction for sometime, I always have the thought that it is going to reverse as it has already moved so far in that direction. However I got stopped out most of the time.
You will find that the price will usually consolidate after moving so much in a particular direction and it will then continue in its trend after the consolidation. For those of you who have the same thought as me when I am new to trading, you will usually get stopped out when the price resume its trend.
Trust me, the easiest way to trade is in the direction of the trend and not against it.
When the AUSSIE dollar is trending a few years back, you will find that most of the bank are offering AUD time deposit with high interest. The reason is because they are going to use your time deposit money to ride the trend. Even the big bank traders are going with the trend, why do you want to trade against it.
2) High Risk Reward Ratio
The second reason why I think trend strategy is the best strategy to use is because of the high risk reward ratio. In case some of you do not know what is risk reward ratio is, let me spend a minute to explain to you in short.
When you enter a trade, you will always set a stop loss and target profit. If you set a 25 pips stop loss and a 50 pips target profit, your risk is 25 while your reward is 50. Therefore your risk reward is 25:50 = 1:2. Personally I only go for strategies with risk reward ratio of at least 1:2.
If you have been with my trade copier service, you will know that I have trades with 1:4 risk reward ratio at times which is the reason why I can maintain good growth every months.
With a 1:4 risk reward ratio strategy, you can afford to lose 4 times in a row with a single win. Since you are riding the trend, your profits will usually be much higher than your loss.
3) Easier to Find Entry
When you are trading in the direction of the trend, you will realize that it is much easier to find an entry as compared to against the trend. When trading against the trend, your entry must be very very accurate so that you will not be stopped out even when the price is just moving sideways.
For trend riding strategy, you will find that the movement in the direction of the trend is always more than against the trend and therefore your stop loss will be less likely to get triggered.
The above are just based on my own experience and opinion. Therefore it is just a suggestion for you and I hope that you find the information useful for you. Do feel free to email me if you have any question.