The Best Forex Strategy I've Used in 3 Years | 4 Indicators
After trading in the forex market for over three years, I’ve tested countless strategies, some with success and others with losses. Through trial and error, I’ve identified a strategy that has consistently provided strong results. The key to this strategy lies in combining four specific technical indicators. These indicators work together to give clear, reliable signals, helping traders navigate the often volatile forex market. In this article, I’ll share the best forex strategy I’ve used in the past three years and explain how to use each of the four indicators effectively.
Indicator 1: Moving Average Convergence Divergence (MACD)
Overview
The Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages—typically the 12-day and 26-day Exponential Moving Averages (EMA). The MACD line and signal line provide key signals for buy and sell opportunities.
Why MACD?
MACD is a reliable indicator for identifying shifts in market momentum. In my experience, MACD is particularly useful when trading in trending markets, as it helps confirm the strength of a trend and pinpoint entry or exit points.
Application
In this strategy, I use the MACD line crossover as a primary signal. When the MACD line crosses above the signal line, I consider it a buy signal. When it crosses below, it’s a sell signal.
Case Study
In June 2022, while trading the EUR/USD pair, I observed a bullish MACD crossover on the 4-hour chart. The MACD line crossed above the signal line, and I entered a long position. Over the next two days, the price rallied, and I captured a 100-pip gain, reinforcing my confidence in using MACD as a trend confirmation tool.
Indicator 2: Relative Strength Index (RSI)
Overview
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. It ranges from 0 to 100, with readings above 70 indicating overbought conditions and below 30 indicating oversold conditions.
Why RSI?
RSI is an excellent indicator for spotting potential market reversals. By combining it with MACD, I can filter out false signals and ensure I’m entering trades when the market is truly overbought or oversold.
Application
In my strategy, I look for RSI readings below 30 to signal oversold conditions, which might indicate a buy opportunity. Conversely, an RSI above 70 indicates overbought conditions, which could be a signal to sell or take profit.
Case Study
In March 2023, the GBP/USD pair showed an RSI reading of 25, indicating oversold conditions. While MACD was signaling a potential reversal, RSI helped me confirm the trade. I entered a long position, and within three days, the price bounced back by 150 pips, providing a solid return.
Indicator 3: Bollinger Bands
Overview
Bollinger Bands are a volatility indicator that consists of three lines: a simple moving average (middle band) and two standard deviation lines (upper and lower bands). These bands expand and contract based on market volatility, helping traders identify overbought and oversold conditions.
Why Bollinger Bands?
Bollinger Bands are particularly useful in sideways or range-bound markets. When used in conjunction with MACD and RSI, they help highlight areas where prices are likely to reverse or experience a breakout.
Application
In my strategy, I look for price movements that hit or break through the upper or lower bands. A touch of the lower band, especially with confirmation from RSI or MACD, signals a buy opportunity. A touch of the upper band could suggest selling or taking profits.
Case Study
In September 2022, the USD/JPY pair hit the lower Bollinger Band while RSI was indicating oversold conditions and MACD was about to cross bullishly. I entered a long position and secured a 120-pip gain as the price rebounded from the lower band and moved upward.
Indicator 4: Fibonacci Retracement
Overview
Fibonacci Retracement is a tool used to identify potential support and resistance levels by drawing horizontal lines at key Fibonacci levels (23.6%, 38.2%, 50%, 61.8%, and 100%). These levels are often used by traders to identify price retracement points within a trend.
Why Fibonacci Retracement?
Fibonacci levels are invaluable in spotting potential retracement points where the price could reverse or continue its trend. By combining Fibonacci retracement with MACD, RSI, and Bollinger Bands, I can better time my entry and exit points.
Application
When the price retraces to a key Fibonacci level—such as 38.2% or 61.8%—I look for confirmation from the other three indicators to determine whether the market is likely to reverse or continue its trend.
Case Study
In November 2022, I was trading the USD/CAD pair, which was in a clear downtrend. The price retraced to the 61.8% Fibonacci level. At the same time, the RSI was near 70, indicating overbought conditions, and MACD signaled a bearish crossover. I entered a short position and profited as the price resumed its downtrend, gaining 140 pips.
Combining the Four Indicators for Maximum Impact
The strength of this forex strategy lies in how the four indicators complement each other:
MACD confirms the trend’s direction and momentum.
RSI helps identify overbought and oversold conditions.
Bollinger Bands provide context for volatility and potential price reversals.
Fibonacci Retracement helps pinpoint potential entry and exit levels within a trend.
By using these indicators together, I’ve been able to filter out false signals and improve the accuracy of my trades. This strategy works well in both trending and range-bound markets, making it versatile across various forex pairs and time frames.
Conclusion
After three years of trial and error, this four-indicator strategy has proven to be the most effective and reliable method I’ve used in forex trading. By combining MACD, RSI, Bollinger Bands, and Fibonacci Retracement, traders can gain a deeper understanding of market dynamics and improve their trading accuracy. While no strategy guarantees success, this combination provides a solid foundation for making informed, high-probability trades.
