Trading in forex without a strategy is like beginning a journey without a map. Without the map, you don’t know to go in what direction. You may lose or you may win, but at the end, you don’t have any idea. The most important advantage of a trading strategy is eliminating the effect of luck from your trading.
Choosing a trading strategy
Choosing a trading strategy is one of the most important things that a trader must do, in order to become successful. Therefore, if you want to be a trader, you should start by choosing a trading strategy.
One thing that you should consider when choosing a trading strategy is you goals and expectations from trading. You may not want to stare at the screen for long hours to analyze the charts and indicators, or you may not want so much stress and risk in your life. When you have chosen several trading strategies, then you should start to test their performance in practice.
First, evaluate your trading strategy with backtesting. This test can be carried out in MetaTrader platform. Then, test your strategy in a demo account. Many brokers allow you to create a demo account and start trading without risking your real assets. If the chosen strategy was still valid after these tests, you can start trading in a live account with a small deposit until your strategy passes the evaluation process. It is safer to start with little deposits and increase them as your confidence grows.
5 Top trading strategies
There are numerous successful trading strategies in forex, but not all of them are suitable for all traders. The best trading strategy for you is the one that fits all of your needs. Some factors that you should consider when choosing a strategy include your free time, your personality and your risk appetite.
Scalping is short-term trading strategy. In scalping, traders open and close positions in short time intervals. Scalpers must have quick responses, because they have to open and close their position within several seconds or minutes. This trading strategy is very stressful, therefore it wouldn’t be suitable for everyone.
Scalpers are always analyzing price charts, in order to anticipate the movements of a certain market. These traders often use short timeframes for their analyses. Scalpers usually trade in brokers that offer low spreads and execute trades with the lowest amount of slippage possible.
2. Day trading
Day trading is another short-term strategy which includes opening and closing trades within a day. Therefore, each position that is opened will be closed at the same day and won’t be rolled over to the next trading day. This will protect traders’ positions against market volatility when they are not monitoring the market.
Most day traders use technical analysis with short timeframes to anticipate the market movements. Day trading could include several different strategies itself, but one of the most popular ones is known as “breakout trading”. In this strategy, trading opportunities form when the exchange rate of a certain currency pair passes over an important price level as the volume of trades increases.
3. News trading
Some forex traders who have more money and higher risk appetite can trader based on news. However, this strategy is not recommended to beginner traders at all. These strategies can be implemented based on technical and fundamental analysis. Generally, news trading occurs when the volatility of the market at the time of important news being published.
Traders who trade based on news should always check the economic calendar to keep themselves up-to-date about the events around the world. Then, they should analyze them carefully to be able to specify key resistances and supports before the time of publication. These traders should always follow their discipline and carefully place stop loss and take profit levels when market volatility rises.
For example, a trader may start trading based on United States unemployment data. These data, especially at the time of COVID19 pandemic, are very volatile. Therefore, they could affect the market severely. Although the employment data were frustrating, the difference between the actual data and the expected data was the factor that controlled the market movements.
4. Swing or momentum trading
Swing trading which is also known as momentum trading is a mid-term trading strategy. Swing traders often trade along or against strong trends (when the market is correcting). Therefore, these traders will have to keep their positions opened overnight.
Swing traders usually generate trading signals and find buy and sell points based on momentum indicators. These indicators are used to determine the overbought and oversold regions in the market. Having this information, traders will be able to manage their trading. Swing traders may also place their orders on key supports or resistances. Several popular momentum indicators are MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index).
5. Trading based on trends
Trading based on trends is one of the most popular trading methods in forex which includes following the current trend or following the movement of a certain currency pair in the market. This strategy often includes buying in pullbacks which occur during an uptrend or upward corrections which occur during downtrends.
When traders open a position during a trend, they keep it until the trend reverses or the price reaches the target. Trend traders often use trailing stop loss to be able to protect their profit if the market reverses.
Many traders use indicators such as ADX or moving averages to smooth the volatility over a specific period. Using these technical indicators, the overall trend of the market could be monitored more accurately. These traders also may use long-term or short-term moving averages in order to generate trading signals.
In addition to choosing a trading strategy, one of the most important things that a trader must do is choosing a reliable forex broker. Aron Groups Broker offers extensive services in several financial markets such as forex, energy, commodity, stocks, indexes, metals, cryptocurrencies, etc. This broker emphasizes on its customer support service and competitive spread rates for top trading symbols. You can start evaluating your trading strategy in Aron Groups Broker demo account completely free of charge, before starting to trade in the real market. This way you can protect your assets at the beginning of your trading journey.
Written by: Mohsen Mohseni (Aron Groups).