Forex Trading Strategies

Forex Trading StrategiesThe first rule of Forex trading every beginner should learn is quite simple. It says: “Plan your trades and trade your plans.” Most beginners who fail in trading at Forex market make the same common mistake - they forget about Forex trading strategies. Without a certain Forex trading strategy there are no chances one will succeed. We offer tips concerning the choice of a profitable Forex trading strategy.

There exist multiple trading strategies at Forex market. By definition, any trading strategy stands for a set of methods applied for determination of buy/sell signals in a currency pair at a certain time frame.  A Forex trading strategy should be effective to cover all losses by means of regular profits.

In the internet a newbie can find free trading strategies requiring testing via demo accounts. Or can pay for already tested Forex trading strategies. However, such offers are mostly scams so additional awareness and research won’t be unnecessary. There is another option – to develop a Forex trading strategy on your own. Most successful traders followed this way and right now teach the others how to earn at Forex market.

Many beginners choose the totally wrong path – they rely on their intuition or luck. Most not reputable brokers make newbies believe in existence of “super-strategy”. The others proclaim Forex trading and the lottery the same. Both statements are false. They have nothing in common with real Forex market trading. Luck, intuition, and “gut feeling” are the last factors which have to be involved in a trading strategy. One of the main rules a beginner should remember: Forex trading can’t be compared to gambling.

No matter what trading strategy you will choose it will be based whether on fundamental or technical analysis of data. Any strategy presupposes the analysis of economic news impacting on a currency pair or/and usage of charting tools and software. Some strategies are prone to one specific type of Forex market analysis. The others are mixed ones from this point of view. Let’s try to figure out the difference between these two types.

Strategies basing on technical analysis are used at Forex market mostly by newcomers. Technical analysis determines the approaches applied for historical price changes study. Basing on these data a trader can build a suggestion how a price will move in the foresight. Potential risks and profits, entry and exit signals are determined by special technical tools – charting indicators. All technical trading strategies follow the rule – “History tends to repeat itself”.  Such trading strategies are formed considering the price patterns of the past.

Another classic approach of Forex market analysis is fundamental one. More experienced traders prefer to build their trading strategies on this type of analysis. It is the set of methods using the analysis of the economic news releases at Forex market. Analyzing such kind of data a trader will be able to predict the price changes.

As you see, the main purpose of both these types is to predict the fluctuations of a currency price. Some newbies may still find this principle dependable on pure luck. We have already mentioned that Forex trading is not a lottery. While you are gambling you can’t calculate your risks. In Forex trading technique of a “stop-loss” order is used. By means of such order a trader can define the limit level of his/her potential losses. When this limit is reached a trading position is closed.

We have figured out how one can classify Forex trading strategies according to the types of data analysis. But another classification is not less important. It divides all FX trading strategies into short and long according to time frames.

Short- term based Forex strategies are recommended for newcomers. They help to practice by earning small profits and risking small sums. There exist numerous strategies where a trader should open and close trades within the same day. Below you will find reviews of short trading strategies:

  • Intraday Forex trading strategies. Multiple strategies based on this method let a trader earn by committing all traders per one day. Usually the main goal is to earn from 4 up to 100 pips within a day before the trading session’s end. In common, a trader is able to conduct up to 5 trades in a single day. The hardest thing is not to miss entry and exit signals and define the trend’s direction.
  • Scalping and picking. Both these methods are grounded on the principle of earning few pips per every trade. Price movements do not often fluctuate a lot. Small changes can also bring profits. Scalpers use this technique because they do not pursue high profits. They are interested in low spreads to minimize their expenses for each trade.

Many newbies choose short term trading strategies because believe they are simpler than long term ones. In fact, long trading strategies at Forex market can be also very profitable and easy to apply. “Trend is your friend” – say appreciators of long term methods and follow this rule steadily. In their turn all long term based trading strategies can be subdivided into few types. They are:

  • Trend trading strategies. If a trader chooses this approach, he or she’ll have to “seize” trends on a regular base. Certain currency pairs show the tendency to form more or less regular long trend. The main rule – buy low and sell is relative to this approach foremost. This advantage is widely used in trading strategies at Forex market.
  • Carry-Trade. Used in medium and long term trades carry trading focuses mostly on interest rates. The most perfect scenario is when the changes in value are small. And there are wide movements in interest rates.
  • Hedging at Forex market. This is another popular technique preserving a trader from undesired changes in currency exchange rates. However, this strategy is rather complicated to apply for a newbie. Mostly huge corporations and financial institutions can afford to hedge at Forex market.
  • Range trading strategies. For fulfilling any of such strategies a trader chooses a currency pair with small daily range. It denotes that a currency should “move” within a chart according to a certain pattern. By defining the ranging cycles of ups and downs a trader can forecast the entry and exit points.
  • Swing trading strategies. Analyzing the market today, traders make a supposition how it will behave tomorrow. If the next day brings the fulfillment of this assumption, a trade will be placed and left open. Then day by day a trader checks the trade’s progress. In this long type of strategy is used the short term trend of one day when a trade has to be closed.

Speaking about combination of long and short term approaches…Some strategies can’t be related to one specific type. For instance, systems based on economic news reacting. Depending on the nature of this news, traders decide whether their trades will be long or short. The same concerns the automated or mechanic trading systems.

The so-called automated systems or MTS (mechanic trading strategies) are very popular these days. This term is explained easily – to apply any of such methods a trader has to use automated trading software. MTS are also named as Forex Expert Advisors or simply EA. Such EA are specially developed tools written by means of the programming language MQL4. They can be used within the popular trading platform – MetaTrader 4. One can use a set of default EA within a program copy set on a PC. Or can create own EA to build a new approach in Forex trading. In both cases a trader can profit a lot using tools for predicting fluctuations at FX market.

Considering all enumerated strategies you can choose any of them to use. Or you have a chance to create your individual system for making money at Forex. There are few common recommendations you can use to develop a trading strategy:

  • it has to be efficient enough to let you earn money regularly. And it should take into account risks management;
  • it should contain stop-loss orders to prevent huge money losses;
  • it must be easy to use. Do not make it too complicated. Keep in mind: “Genius lies in simplicity”;
  • it should involve tools and indicators you are comfortable to work with;
  • you have to define to what type of analysis your strategy will belong;
  • you have to choose its type according to time frames;
  • select if you like to trade with or against the trend;
  • whether you will pick up to apply candlestick charting analysis or not.

Every detail has to be planned according to your own preferences. Your strategy should assist in making trading decisions.

To make your strategy perfect you will have to learn a lot. For this purpose you can appeal to any reliable training course. Usually Forex brokers propose few forms of education to choose from: individual webcam sessions with a personal guide, webinars or in-class seminars with other newbies, discussion groups arranged online or offline, chats and forums featuring more experienced traders. You can spend a lot of money or can buy only few books and educate on your own. The last method is the hardest but persistence is good quality of a future trader. The main purpose of your Forex education is to start from studying basics. And then gradually learn all required nuances of trading at the financial market.

A beginner should make only one conclusion: it is impossible to trade at Forex without a certain set of rules. Pure luck can bring profits once or maybe twice. But the stable income will depend directly on efficiency of the chosen trading strategy. Remember the wisest advice: Forex Trading is mostly about self-government. If you can cope with your own emotions, you will be able to trade currency successfully.

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