The Forex or foreign exchange trading market excessively depends on currency pairs and their volatility. Inflation rates, several geopolitical events, and, most specifically, the policies of the Central Bank often regulate the dynamics of these pairs.
In 2024, the Japanese Yen lost 10.5% of its value against the US Dollar due to growing interest rates between the two countries. While this may impact Japan's economy, traders trading in USD/JPY forex pairs significantly leveraged profit.
However, these unpredictable price movements and currency volatility offer traders opportunities as well as risks. This is why numbered strategies are important in forex trading. This guide will explain the most popular numbered forex trading strategies and their use.
In 2024, the Japanese Yen lost 10.5% of its value against the US Dollar due to growing interest rates between the two countries. While this may impact Japan's economy, traders trading in USD/JPY forex pairs significantly leveraged profit.
However, these unpredictable price movements and currency volatility offer traders opportunities as well as risks. This is why numbered strategies are important in forex trading. This guide will explain the most popular numbered forex trading strategies and their use.
What Are Numbered Strategies?
Numbered strategies in forex trading offer a systematic approach while enhancing the consistency and predictability of a trading venture. They are designed to reduce decision fatigue and human error while making fast trading decisions such as is needed during Forex trading.
- Numbered strategies in forex algo trading provide traders with a clear structure that helps them focus solely on trading rather than contemplating it. In a numbered forex approach, each number represents a specific action or rule that the trader follows. This helps traders to be consistent with their plan avoiding emotional or impulsive trading decisions.
- It requires you to trade in forex pairs, which are basically currencies. The shift in the currency values gives traders a quick profit unlike in traditional trading. But this inherently uncertain trading requires you to proceed with a preset rule to eliminate doubt and hesitation while in action.
How to Use Numbered Strategies in Forex?
There are quite a few numbered strategies offering solutions for forex trading. This may lead you to confusion in choosing your preferred one. Depending on your type of trading you can choose one single strategy or combine several. Here are the steps you can take to implement numbered strategies in your trading routine;
-> Select the Strategy
Sticking to a plan is important. Get through the numbered strategies for forex trading here and pick out the one that suits your type well. If you prefer being straightforward, take the 5-3-1 trading strategy. Whereas, if you want more advanced technological assistance, try the 1-2-3-4 Reversal Trading numbered strategy.
-> Identify your Suitable Forex Pair
Now solely based on your strategy, identify the currency pairs that are most likely to generate profitable opportunities. You can choose among the popular forex pairs like the (EUR/USD), (USD/CHF), or (GBP/USD) pairs as they offer high liquidity.
-> Analyze the Market Well
Assess the current market conditions from depth. This includes understanding the volatility, news events, and overall market trends. This analysis helps to determine if the strategy is applicable at that time.
-> Set Your Entry and Exit Rules
Your entry and exit points will also need to be in accordance with your forex strategy. The different strategy suggests different entry and exit methods. For instance, Fibonacci Retracement suggests traders wait until the price retrace to a specific Fibonacci level before entering the trading arena.
-> Stick to Your Set Plan
As you are inside the trading area, be true to your plan. Don't juggle between strategies and make impulsive mistakes. Show consistency as this will gain you a steady profit.
-> Do Proper Backtesting
Before opting for a strategy in live trading, it is very important to go through a historical data check. A thorough backtesting helps traders understand how that particular numbered strategy has performed under various market conditions in the past. Taking the help of a forex algo trading software can help traders make decisions based on the past success of a proven strategy.
-> Have a Risk Management Plan
Moreover, having a sensible risk management plan is a must when you are dealing with international currency trading. Even the best number strategies cannot save you in an unlucky, unfavorable market condition. So, set your stop-loss limits, calculate your position sizes, and diversify your forex trading in multiple currency pairs to spread out the risk.
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Popular Numbered Forex Trading Strategies
Each newbie or professional trader in the forex trading arena needs to have a trading strategy that perfectly complements their trading style. While choosing a numbered forex trading strategy, they must consider the time frame, number of currency pairs, and position size.
Let's then explore some of the most preferable numbered forex trading strategies of today. With the right application, you can soon become a pro in forex trading.
Let's then explore some of the most preferable numbered forex trading strategies of today. With the right application, you can soon become a pro in forex trading.
1: The 5-3-1 Trading Strategy
If, as a newbie, the broad array of forex trading makes you dizzy, then applying the 5-3-1 trading strategy will be extremely beneficial for you. This strategy focuses on reducing decision fatigue by limiting pairs, timeframes, and strategies. Traders here limit their trading to 5 forex pairs, 3 trading strategies, and 1 timeframe for trading.
2: Opting for Only Five Currency Pairs
Here, traders limit their trading currencies intentionally to only five. This helps them focus and concentrate their actions, research, and trading in a limited but confident manner. The most popular currency pairs, like EUR/USD or USD/JPY, often remain the top priority of traders due to their high liquidity and volatility.
3: Developing Three Trading Strategies
This numbered strategy insists traders develop three diverse trading strategies. Setting entry/exit points, opting for MT4 bot development tools and software, and rigorous backtesting can be your three effective forex trading strategies.
4: Selecting One Timeframe
It also advises you to take a specific time of the day for executing your trades. It also suggests you focus on either a 15-minute chart or a 4-hour chart as your trading timeframe. This will help you get rid of unnecessary confusion.
Therefore, the main objective of this first strategy is to help traders focus on their objectives, avoiding getting lost in the wide, overwhelming options in the forex market.
Therefore, the main objective of this first strategy is to help traders focus on their objectives, avoiding getting lost in the wide, overwhelming options in the forex market.
5: The 1-2-3-4 Reversal Trading Strategy
This forex trading strategy is a pattern-based strategy that focuses on reversals of price trends. It is best applicable when after an upward or downward move of a strong currency pair with a prospect of reversal. Traders can confirm the prospect of a reversal by using any technical indicator like MACD or DMI. Let's understand how to identify and trade the 1-2-3-4 pattern;
1: It is the point that suggests the start of a trend
2: It indicates the first high or low set in the trend
3: It suggests a reversal point after which the upward or downward trend may end
4: It is the confirmation point where the price of currency breaks the trend established by points 1 and 2, suggesting a complete trend reversal.
By observing this pattern, in a currency pair, traders can enter the market and leverage their profit through trading once point 4 denotes a trend reversal. For example, trading with the GBP/AUD currency pair can be best executed by using this numbered strategy. This is because you can see frequent trend reversals between these two currencies.
1: It is the point that suggests the start of a trend
2: It indicates the first high or low set in the trend
3: It suggests a reversal point after which the upward or downward trend may end
4: It is the confirmation point where the price of currency breaks the trend established by points 1 and 2, suggesting a complete trend reversal.
By observing this pattern, in a currency pair, traders can enter the market and leverage their profit through trading once point 4 denotes a trend reversal. For example, trading with the GBP/AUD currency pair can be best executed by using this numbered strategy. This is because you can see frequent trend reversals between these two currencies.
6: Fibonacci Retracements
The Fibonacci retracement strategy focuses on identifying potential support and resistance zones. Traders use this strategy to pinpoint the areas for entry, profit-making, and setting stop-loss orders. This strategy is best suitable to a market that has recently witnessed a large upward or downward move and now is flattened at a certain price level.
- To draw and apply Fibonacci retracements in trading, traders pinpoint different levels like 38.2%, 50%, and 61.8% at the horizontal chart. These points indicate a potential reversal point, after which the price of the currency pair may pull back or continue to go upward.
- One can buy forex pairs near a 38.2% retracement level and set the stop-loss level just below 50% or buy near the 50% level and set the stop-loss below the 61.8% level. Thereby, while trading you can use the Fibonacci retracement levels as your profit-making targets.
7: Elliott Wave Theory
The Elliott Wave Theory explains market movements in specific waves. This theory says that market movements have impulse waves and corrective waves. It is used in analyzing the long-term price movement of a currency pair. The waves here indicate the price levels of a currency pair where level 5 indicates a high-price exit signal and level 2 indicates a low-price entry signal.
- The impulse waves here are the first five waves that indicate the current market trend. These five waves have three upward sub-waves and two downward sub-waves.
- Whereas in the corrective Elliott waves, you will get three waves that will go against the present market trend.
- Out of the three waves, one sub-wave will go in the upward direction and two sub-waves towards the downward direction.
- It indicate the strongest market movement and lowest price levels to enter, whereas corrective waves indicate traders sell their positions as the market is correcting itself.
- Elliott Wave Theory can be used in conjunction with other tools, such as Fibonacci retracements, to confirm wave structures and refine entry and exit points.
8: Gann's Square of Nine
This strategy by William Delbert Gann focuses solely on geometrical and mathematical approaches using the legend's own formed wheels and squares. Gann's square of nine is a perfect combination of geometry, ancient mathematics as well as astrology.
- The Square of Nine is arranged in a spiral, with numbers placed at 45-degree intervals. Traders use this square to get the price levels and anticipate their future moves. They can take any number from the square and get the square value of the next without doing manual calculations.
- When applying Gann's Square of Nine, traders can overlay the square on the price chart of a forex pair and identify key angles where price movements may change direction. Using the Gann chart, they may simply replace the starting number 1 with any other number of their choice and get their desired step value for an easy calculation.
9: The Gartley Pattern
The Gartley pattern is a harmonic pattern based on Fibonacci numbers and ratios by H.M Garley. Identifying a Gartley pattern using a forex algo trading software is simple.
- You will see an uptrend from point 0 to point 1, a typical 61.8% Fibonacci retracement between point 0 and point 2. There will be another price reversal towards point 3 from point 2 with a typical 38.2% retracement. After point 3, the prices will reverse again towards point 4, which indicates a buying signal.
- The main advantage of the Gartley pattern is that it can accurately predict reversals. However, it is highly dependent on precise Fibonacci ratios, which can be a liability.
10: The Butterfly Pattern
The Butterfly Pattern is a unique harmonious pattern that focuses on trend reversals. It has four key price movements, i.e., X-A, A-B, B-C, and C-D, which together provide a butterfly imagery in the chart.
In the case of the bearish butterfly pattern, the trend with start with an upward move and suggest selling opportunities for forex traders. The primary feature of the Butterfly pattern is the extreme price movement at point D, which is usually a 78.6% retracement of the move from X to A.
11: The Crab Pattern
The Crab Pattern is a harmonic pattern designed for extreme price movements. It is often used in markets that experience rapid shifts in direction. This makes it useful for traders with volatility-based strategies.
The Crab pattern has four points, just like the Gartley and Butterfly patterns. But the thing that makes the Crab pattern unique is the significant extension at point D, which can reach up to 161.8%.
The Crab pattern has four points, just like the Gartley and Butterfly patterns. But the thing that makes the Crab pattern unique is the significant extension at point D, which can reach up to 161.8%.
Conclusion
Forex trading is complex if you don't follow a perfect numbered strategy suitable for your trading style. Each of the 8 numbered strategies discussed here has its own merits to benefit your forex trading. Use a robust Algo trading platform supporting Mt4 bot development to compare the variables of these numbered strategies and leverage the best outcome for you.