If you can crack the best trading strategy that suits your style, then you are in for profits. A winning strategy cushions you on the losing trades and maximize the winning ones. To arrive at the best strategy, you should consider the following determinants: time frame, number of trading opportunities and size of the trade.
The time you intent to stay on the trade plays a role in your adoption of a strategy. Different trading strategies adopt either long, medium or short-terms. The strategy you adopt also depends on the number of positions you want to open. You should also work within your risk ceiling.
Selecting an Effective Forex Trading Strategy
Selecting the market
It is worthwhile to narrow down and specialize on your preferred currency pair and eventually become an expert in determining trading trends of the particular currency.
You should set your rules on how and when to sell or buy currency pairs. Have own rules on the entry and exit points.
Key Forex Strategies That Work
Position trading is a long-term strategy where you hold trades for months by using daily and weekly timeframes. Here you will employ fundamental analysis tools such as GDP , NFP, retail sales etc in your trading decisions.
Due to it’s long term nature, position trading relieves you the stress of close minute by minute monitoring of trade signals. However, it is disadvantageous because of the low number of trades translating to less profits in a year.
Swing trading is a medium term strategy that allows you to hold trades for days or weeks in order to capitalize on a swing move in the market. The advantage here is that you don’t need to be present by the computer to monitor performance. The strategy is likely to be profitable every year because it has several trading opportunities.
A day trading is forex strategy that involves holding trades for minutes. Here, the general economic outlook won’t matter to you. At the end of day you close your positions. The benefit is that you will avoid overnight risks and make profits during the year due to the numerous trades involved.
Scalping involves short term holds that lasts minutes. Here, you are taking advantage of the spur of the moment’s market performance. If you are good and fast, you can make money through lots of trading opportunities every day.
However, this strategy has high financial cost of installing software to manage your fast trades. It is a stressful activity that requires you to be constantly glued to the screen for hours on end.
Transition trading involves finding an entry on lower timeframe and if market favors you, you can increase your target profit on the higher timeframe. The strategy can only work if you understand timeframes well.
What to Consider Before Adopting a Forex Trading Strategy
Before adopting a articular strategy, it is vital to ask yourself what you want to achieve. If your main focus is income, then you must trade several times and spend hours monitoring figures but if wealth is your driving factor, then you can go for long term strategies.
When to Change Your Strategy
A forex strategy works well if you play by the set rules, but circumstances change and what worked well in the past is no longer viable today. To stay afloat it is time to execute a new plan through the following ways:
- Match the risk management with trading style and determine the risk/reward ratio and if not favorable, it is time to change.
- Forex markets are dynamic and as they evolve, your strategies become obsolete and signals a new strategy.
- Technical strategies are difficult to comprehend. If you can’t figure out the strategy, then it won’t work. Hence a new strategy beckons.
The Final Submission
A forex trading strategy is a method employed by a forex trader to gauge whether to buy or sell currency pairs at any specified time. A trading strategy employs both technical and fundamental analysis to determine buy snd sell decisions.
In addition, trading strategies incorporates manual or automated tools to generate trading signals. Manual systems demands that you remain at your computer monitoring trading signals minute by minute.
Over time, you should consider dropping a dormant strategy and replace with another. However, too many strategy changes unsettle your trade and may be costly especially if new automation is involved. It would be best if you start with a simple strategy then perfect it over time.