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How to choose a trading strategy?

Author: Patrick Dresdner
Patrick Dresdner
All publications of the author

Getting the first time in the sphere of the Forex market, the first thing a novice trader is faced with the problem of choosing the trading strategy. The thing is that the choice  of these strategies are so huge that it's hard not to get lost. In general, starting to work on Forex is the same for everybody: open experimental demo account (virtual analogue of a real account, but without risk), and on its basis a trader learns to trade in the market to make transactions (enter the market).

Most often, the first transactions are made by the trader purely on intuition. Very rarely, these experiments bring positive results, often the result of such activities have a complete collapse, that is, the loss of the deposit. Exactly at the moment when a novice trader is aware that his manipulations led to such disastrous results here, he starts to think about trading trading strategies in Forex market. If you are looking for a reliable and experienced trader, «Forex brokers» section will help you choose a reliable representative.

What is the strategy of trading in currency market?

Trading Strategy in Forex market is defined as a certain (strict) set of rules that a trader uses for trading operations. In simple terms, a trading strategy is a set of manipulations, which trader carries out  in the course of his work. If you have plans to work on complex strategies, it would be better to give preference to the more experienced broker. Section «compare Forex brokers» will help you to choose the right company. There are several different trading strategies. The classification depends on the time factor.

  • Long-term strategies. In this case the trader carries out transactions with the patronage of the future. In such a strategy, trade may last for several weeks, months, or even more than six months.
  • Medium-term strategy. Here, the trader carries out transactions with the expectation of a few days to several weeks.
  • The short-term strategy. They can be used for a time (a few hours in the limit of the trading day) to a day (within a few days a week).
  • Scalping or two hours, as they are called. Used for fast transactions that are carried out within 2 hours of trading time.
  • Pipsing or another name - instant strategy. Used by trader for transactions with a time intervals from one to five minutes. The universal strategy for frequent transactions. Broker for such strategies, customers can choose by visiting the «Best Forex ECN Brokers» section.

Further, with respect to general principles there is a difference in the complexity of strategies.

  • Simple - the basic rules of transactions (entry and exit from the market).
  • Indicator - a little bit more difficult than simple rules, but at the same time clear enough to be able to use both experienced brokers, as well as beginners in Forex trading. The basis for these strategies is mutual functionality of several indicators. Tracking them is quite simple and the strategy is justified.
  • Non indicator - this category strategies still called price, because here the role played by the price indicator. The basis of these strategies: support and resistance levels, Fibonacci levels, trendlines, Fibonacci channels, graphical models, Andrews' Pitchfork, and many other graphical elements. With such strategies often work banks offering Forex trading. It's all about the experience and knowledge from within each strategy.
  • Breakout - already from the title it is clear that the basis of these strategies have laid down principles to overcome the level of the maximum and minimum level, output price band and so on.
  • Trading Strategies Martingale - lie at the heart of the manipulation by several operations (transactions), which are held in different directions. The peculiarity of these strategies is the assumption of a gradual increase in the lot. The essence of these strategies is that they provide in any case a positive shopping time. The fact is that a large number of concurrent transactions covers income unsuccessful moves and give the final result of the income.

So what is the best strategy? How to choose?

Experienced traders say that in any case you will need to use at work at least two strategies. But it is better to have skills with each kind of strategies. This ensures a higher quality experience.

When choosing a strategy for yourself you need to take into account several specific factors:

  • the amount of capital that is present at the disposal of the trader at the time of commencement of work;
  • professional knowledge and skills to work with the system;
  • depending on how much time a trader can devote to work.
  • Remember, trading is individual concept, and don't think that working on a pattern of your mate trader will justify your opportunities. It is better to learn the basics of all the strategies and choose the strategy based on your capabilities and initial data.

The process of selecting the strategy - how it works? 

The decisive factor in choosing a strategy is nothing more than the size of the initial deposit (the capital at the disposal of the trader). If you have several dollars on your account - give preference to scalping. The right broker for such a strategy, you can pick up by visiting «Best STP Forex Brokers» section.

Basics of this strategy is a thorough knowledge of strokes and pitfalls. Lots of beginners and professionals claim this strategy as the most profitable option for a small limited budget.

If you have the deposit, which has from one to several thousands dollars, there are several strategies to increase the choice.

Still, do not try to play too big bets. It is better to give preference to the measured medium-term trading. And do not ignore the leverage, the most profitable sizes is 1: 10-1: 50, not more.

By the way, it is worth recalling that even a deposit of ten thousands dollars is not a reason to use sophisticated strategies. So work can afford only experienced traders. If you have an impressive amount,  choose a broker very carefully. To learn more about how to choose a broker in the section «How to choose a Forex Broker?».

The time span of transactions - the duration of the proposed transaction is also an important criterion when choosing a strategy. Most often works pattern: a small deposit - big leverage - short-term deals.

Working hours - here the choice of strategy will be directly related to how much time you can devote to work. We must bear in mind that if you can only work in the evening until the morning, then you get to the US and Asian trading sessions. Regarding this make your choice of strategy.

Experience - no doubt, experience is an important criterion. If the trader is not a beginner, it is, anyway, but already familiar with all the strategies and knows what to expect from each option.

For new traders, who know only superficial notions following four trading options will be useful:

  • Copy - while your terminal is connected to the accounts of a professional, you just copy its deals, though you will have to pay some percentage to the professional;
  • Trading Advisor (robot) - download a free advisor, install it on the terminal and follow  its tips, but be aware of the risks of such advisors
  • PAMM account - is the most controlled strategy. It is not about independent work of the trader, but investment activity.
  • Create your own strategy - at some point, you will have to come up with your own strategy, and you might as well start with one

In conclusion, I would like to point out that perhaps the most important factor is the character of trader. If you don't panic, you know how to calculate the moves, know how to control yourself in moments of expectations - be sure to choose any strategy, but if you are impulsive, it is better to give preference to strategies that will minimize your participation in the trading process, otherwise you risk to commit follies.

 

Briefly, here are the 7 Forex strategies to choose from:

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Risk Warning: Your capital is at risk. Statistically, only 11-25% of traders gain profit when trading Forex and CFDs. The remaining 74-89% of customers lose their investment. Invest in capital that is willing to expose such risks.
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