Forex Strategies: Who has the Best Forex Strategy?

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Forex Strategies: Who has the Best Forex Strategy?

  • Hmmm…a simple question but a difficult one to answer. With hundreds of forex strategies, indicators, patterns and etc,; the question is who, how and what should we follow?
  • The interesting thing about trading is that most parameters are measurable and can be analyzed i.e. how much you buy, sell, how long you hold the trade, what time-frame charts you are using, strategies and indicators etc. All trades can be compared and analyzed, provided the data given is ‘honest data’ and not some ‘Adobe photoshoped’ data/statements. There should not be any reason for ‘subjectivity’ when it comes to making money. Subjective terms i.e. ‘Most likely’, ‘probably’, ‘tendency to’ are not very helpful in comparing strategies. We need to put numbers to numbers, period.
  • Market environment can change (there are basically two major market conditions i.e. ranging or trending) especially during major news reports. You can actually see the spike real-time during the news release e.g. non-farm payroll report. Many traders may have a few months of successful performance and one month of market reversal is enough to wipe their gains. That’s why there are more losers than winners in the Forex market.
  • When the market is trending, the trending strategies will work well and trend followers would probably be showing off their statements. However, when the market changes to a ranging environment (moving side-ways), the trend followers will be relatively quiet. Again, we need verified ‘numbers’ or quantitative data to get a better understanding of all the major variables.
  • For those of you interested in strategies, here are more than 100 forex strategies (from basic to advanced) for you to choose from:
o   17 Basic forex strategies: http://forex-strategies-revealed.com/basic
o   51 Simple forex strategies: http://forex-strategies-revealed.com/simple
o   22 Complex forex strategies: http://forex-strategies-revealed.com/complex
o   20 Advanced forex strategies: http://forex-strategies-revealed.com/advanced
  • Overwhelmed? Some of the forex strategies have only less than one year of track record and some do not show any performance record and therefore it’s difficult to compare and to know which strategy is the best. A proven strategy with 3 years track record is better than one with 3 months track record. Moving forward, you could choose one proven strategy that you understand well and adapt it with the current environment.
  • I would like to share and summarize a research paper published by The Journal of Wealth Management, February 2009; by Mebane T. Faber; A Quantitative Approach to Tactical Asset Allocation.
…A simple moving average timing model is tested since 1900 on the United States equity market before testing since 1973 on other diverse and publicly traded asset class indices, including the Morgan Stanley Capital International EAFE Index (MSCI EAFE), Goldman Sachs Commodity Index (GSCI), National Association of Real Estate Investment Trusts Index (NAREIT), and United States government 10-year Treasury bonds…

…In deciding on what logic to base this system on, there are a few criteria that are necessary for this model to be simple enough for investors to follow, and mechanical enough to remove emotion and subjective decision-making…

The system is as follows:
BUY RULE
Buy when monthly price > 10-month SMA.
SELL RULE
Sell and move to cash when monthly price < 10-month SMA.
  • The 10 month SMA (simple moving average) strategy was back tested for 108 years on the S&P 500 and has an annualized return of 10.45%. I know forex traders would not be impressed with this strategy as it is too simple and most traders are impatient. For those of you who are interested to optimize the strategy, you could use the 200 or 150 daily simple moving average (depending on the pair you are choosing) to time your entry. Now choose a pair that is trending; a weakest currency against/vs a strongest currency e.g. EUR: AUD. (you could also earn interest on this pair). Short the pair until the price closes above the 10 month SMA or 200 daily SMA. Some of you may not be impressed with a 10.45% per annum return, but with fx leverage (1: 100); you are looking at 10.45 x 100 = 1045% per annum; reasonable return? Some brokers do offer a leverage of up to 500, but there is no need to be too greedy.
  • When it comes to your hard-earned money, you should not make hasty decision. Do your own research and make an educated decision. Use demo account first and get familiar with the software. Be proactive and not reactive. Remember, every trade you trigger, cost you money (is called the ‘spread’). No one is more interested in your money than yourself.
 Recommended links for your Forex journey:

I look forward to comments and sharing on your forex strategies. Good luck and happy pipping!

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