What is a trading strategy?
A Forex trading strategy is a pre-thought-out algorithm of actions that allows you to achieve your goal as quickly as possible at an optimal level of risk. Often the goal is to get a certain percentage of profit.
Why is it important to have a trading strategy?
- You have a strategy, so you know in which situation what actions to take in order to maximize profit or minimize potential loss.
- With a plan, you understand the end goal. You divide it into several stages and at each stage you check the effectiveness of the strategy. If you realize that the plan is not being executed, you rebuild the trading system.
- Having a trading strategy also has an emotional aspect. When you have a plan, you strictly follow it without giving in to emotions. For example, the price after opening a deal has gone the other way, but the plan provides for an acceptable loss. Therefore, you don't close the deal in panic, you don't wait until the last minute in the hope that the price will turn around, but you thoughtfully follow the pre-thought-out strategy.
There are short, medium and long term strategies
Short-term
This strategy is intended for experienced traders. It includes:
Intraday
This is intraday trading, when a trade is opened and closed in one day. Forex strategies for day trading are not difficult and quite understandable. They are suitable for most market participants. During the day, a trader can make several deals at once using different instruments. This variant of exchange trading allows traders to open up to 5 deals per day.
Scalping
This option is convenient if you have a small amount of money in your account. Contracts are signed for a minimum period - from a few seconds to half an hour. In this case, an experienced scalper can make up to 200 trades per day, but not all of them bring profit. This is a rather complex way of trading, which is used regardless of the main direction of market movement.
Important! Short-term trading strategies are the most aggressive, as they involve the conclusion of many contracts - an average of 100 deals within 1 trading day.
Medium-term
In medium-term trading, positions are held for at least 1 trading day, and the maximum period can be up to 2 weeks. At the same time, in order not to lose your own investments, it is recommended to work with leverage not more than 1:3. Before entering the market, a trader conducts technical and fundamental analysis.
The medium-term trading strategy includes trend breakout trading. The strategy is based on the idea of wave development of the market. Any long-term trend ends with consolidation or change of direction. If the price breaks through the trend line and after a small consolidation pushes back from it, there is a change of trend.
This variant of the strategy for beginners is more suitable than scalping.
Long-term
A simple strategy for long-term trading is suitable for both new traders and quite experienced market participants. In this case, contracts are concluded for several months.
Long-term trading provides an opportunity to observe the price chart movement more calmly, less worried about the result of the deal. A trader does not need to sit at a computer all the time, 15-20 minutes a day is enough to monitor the market situation.
Proper forecasting when using long-term trading strategies allows investors to make large profits. One long-term trade can bring several thousand pips.
Long-term strategies include position trading. It is based on the wave theory, according to which the market develops in cycles - any growth is followed by a decline. A trader takes a long-term position, taking maximum profit from one wave of price growth or decline and ignoring local counter-trend corrections. The position is closed when the price reverses or goes flat. Cryptocurrencies and stock assets are best suited for position trading. Currency pairs move in a narrow corridor, while cryptocurrencies and stock assets have no growth ceiling and have long trends.
What does the choice of trading strategy depend on?
There are many simple Forex strategies developed today. Therefore, it is important for each new participant of trading to choose the most optimal plan, to improve it over time to suit himself. Profit in this business largely depends on the correct choice of the moment of concluding a deal and the period of holding a position.
3 rules to consider when choosing a strategy:
-
Having concluded a contract, each trader independently decides for what term he opens a deal, i.e. determines the time and date of closing the contract. Therefore, trading strategies are subdivided into short-, medium- and long-term strategies according to the duration of position holding.
-
In order to correctly predict the market movement, you need to be able to analyze it. For this purpose, there are 2 types of analysis in trading: fundamental and technical. Some people think that mastering one of them is enough for profitable trading, but this is an erroneous opinion.
In practice, those participants who do not know the basics of any of these types of analysis most often lose money on the currency exchange. But those who effectively use both fundamental and technical analysis in their work make a big profit. -
For the Forex market, the best trading strategies are those that utilize different instruments simultaneously. To analyze the changes on the price chart, it is necessary to use technical analysis, which consists of 3 main groups: figure (price patterns), indicator, candlestick.