What are Forex trading strategies?
What are Forex trading strategies and why are they needed?
Choosing types of forex trading strategies is one of the most important steps for a successful trader. It is thanks to the right strategy that you can stay in the profit zone in total: determine favorable moments for entering the market and exit losing trades with minimal losses. Even the simplest strategies can make a profit if they perfectly match the experience and style of the trader.
The main thing that gives a good strategy to a trader is a clear understanding of the market and a trading plan. This is especially true for beginners, since even studying the aspects of fundamental and technical analysis does not always lead to an understanding of when to open a deal. A ready-made strategy is able to effectively solve this problem. Entrance or exit is carried out at the moment when the trader sees the market situation defined in the strategy: the price reaches a certain level, the graph forms familiar figures, the intersection of indicators installed on the chart, etc.
In addition, the strategy removes such an important issue as the choice of an asset. Many strategies are designed for specific currency pairs and help determine the behavior of this particular asset - its liquidity, volatility, and more.
Using the right types of forex trading strategies can protect the trader from completely zeroing the account, which often happens with unsystematic trading. Of course, absolute success in this case is not guaranteed, but strategies help to conduct trading more competently, since they are all designed for a certain level of risk and profitability.
There are a great many strategies today, so a novice trader should take the issue of choice seriously.
Types of forex trading strategies
Types of forex trading strategies are determined by the duration of holding open positions. Open positions are those transactions that a trader opened, that is, bought or sold a currency, but did not close it, that is, did not complete the reverse purchase and sale operation. The optimal time to hold a sale or purchase is usually determined by the trader’s goals, market conditions, and the forecast horizon. In accordance with the duration of holding a position, all strategies can be divided into three groups.
Long term strategies. In this case, an open position can be held from several weeks to a year. This allows you to monitor the market in a relatively calm mode, without worrying about the current state of the transaction. Such strategies can be used both by beginners and experienced traders with a conservative style of trading who want to get a small but stable result. However, to work in this style, a trader must have a certain character set, since not everyone is able to observe changes in profit by position for a long time.
Medium-term strategies. Usually they are built on the basis of technical analysis (it will be described below), while the positions are kept open from one day to two to three weeks. During this period, the trader can make a profit of 50 to 200 or even more points, depending on the current market volatility.
Short-term strategies are the most profitable, but also the most risky, because trading takes only one day and sometimes it is very difficult to predict the movement of prices. Short-term strategies include scalping and intraday.
"Scalping." Such strategies require the opening of 100 or more transactions per day, the profit on which is minimal, and a high profit is achieved precisely due to their number. The duration of the transaction can be from a few seconds to several minutes. Scalping is considered one of the most difficult types of trading, because during such transactions it is impossible to exclude frequent triggering of stop-losses, which leads to a decrease in profits. Some brokers through which Forex trading is conducted generally cancel all transactions lasting less than five minutes, so you should be very careful when choosing such strategies.
Intradei - intraday trading, in which a transaction is opened and closed within one day and lasts from 15 minutes to 4 hours. The number of transactions per day for such strategies does not exceed three to five, so “intraday” is considered less risky than “scalping”. The basis of such strategies is the search and study of patterns at the junction of trading sessions, and profit is fixed at the end of the day or after reaching a predetermined goal. Intraday strategies are quite simple and can be used by novice traders.