When you are trading, it’s essential to understand that discipline is key to success. It’s easy saying this but it can be difficult to enforce when you are in a trade. One method to help you stay disciplined is through having a selection of Forex trading strategies in place that you can stick to. If you have a Forex trading strategy that is reasoned and back-tested, it can be assured that you have a quality trading system in place that works. By having these in place, it makes it much easier for you to maintain discipline. In this forex strategy guide, we will cover a range of strategies that you can consider and start implementing them today.
What is a forex trading strategy?
Every Forex strategy has a few elements, these include:
- Rules for entering a trade
- Rule to exit a trade if it goes against you
- Rules for where to take profits.
Once you have these three elements, you have a well-rounded strategy.
A forex trading strategy is basically a decision-making process to determine when to enter and exit the market. The question arises are the rules fixed? Or do they have some wiggle room? Well, there are two forms of strategies. The first is a systematic trading strategy where the rules are fixed. The second is a discretionary strategy which is where you can interpret the rules for your circumstance.
What is technical analysis?
Technical analysis uses data from price and volume to make an informed decision regarding your trading. One example of this would be to identify the support levels and resistance levels. This includes indicators that are based on prices that have moving averages.
What is fundamental analysis?
Fundamental analysis is where external data such as economic and financial data is used to create your strategy. One example of this would be checking how countries’ interest rates could affect the currency value. Another form of this analysis is by checking on a business and seeing how its actions may impact its share price.
Picking the best forex strategy for you
When it comes to clarifying what strategy is best for you, it’s hard to determine and there is not a single answer. The trading strategies will be suited for the individual who is investing. What may work for someone else, doesn’t mean they will work for you. This means that even if a strategy has been stopped by someone, doesn’t mean you shouldn’t try it. Experimentation is key when it comes to forex trading strategy and this is where you will find out what works for you.
Different types of forex trading strategies
Scalping – These are extremely short trades that are only held for a maximum of a couple of minutes. Scalpers aim to beat the bid and skim some slight profits before exiting the deals. This form of trading strategy is for the most advanced strategies. This strategy uses low time frame charts.
Day trading – The hint is in the name when it comes to this strategy. This removes the risks of any losses through major moves overnight. This is a strategy popular with beginners. These trades will only last a couple of hours and are analysed through price bars.
Swing trading – This strategy is where the position is held for a number of days. Traders aim to make their profits from short-term price changes.
Positional trading – This is a long-term strategy and most traders have at least one of these in place. These traders strive to make larger profits from big shifts in price. This sort of trade would be looked at by the end of every day, but this form of trading requires a good amount of knowledge of the market.
Daily Chart Forex Strategy
Some of the best forex traders will constantly swear by daily charts over other short term strategies. This is compared to other strategies such as the Forex 1 hour strategy, or even lower time frames or even assets that make lees nose in the market with a Forex daily chart. These forex trade could amount up to 100 pips per day due to the linger time frame. This is why this form of investing has some of the best potential and successful trades.
Daily forex signals can be much more reliable and the profits can also be much higher, but it is important to understand that there are no guarantees in trading. Traders also don’t need to worry about random price fluctuations as it is based on key principles. These include:
Locating the trend: Markets trend and consolidate and then repeat in cycles. The first principle of the daily strategy is to analyse when the long drawn moves occur in the forex market. One of the methods in figuring this out is to study the price data for the past 3 months . You need to then identify the highs and the lows which will then enable you to identify the market direction.
Stay focused: Trading of course requires a lot of patients, and you should learn that you should never just give in to the urge to entering a market straight away. Stay out, keep your budget for a larger opportunity which is of course the key to success in a daily time frame.
Using large stop losses: There are inevitable going to be large swings when it comes to the market. Using a large stop will help you to deal with random volatility without losing all of your capital.
Counter-Trend Forex Strategies
Counter trend strategies will rely on the fact that trends come and go and don’t often rely on long term trends. These types of traders use a strategy that aims to gain the advantage of a price bouncing off the previously established highs and lows. This is hands down one of the best strategies to gain your confidence in the trading game.
It’s essential to understand that you are going to need to be strong will powered and keep a tight reign for your risk management. This form of investing relies on support and resistance levels staying level. When these levels break down, there can be a large downside, so it pays to do your due diligence before committing. The state of a market is volatile and can change rapidly, so ensuring you have large stop losses in place can help you to prevent a lot of damage. Scams are a real thing and can happen in these types of trades, if you have, speaking to a solicitor regarding forex scams will will to recover losses.