Business

How to Choose the Best Forex Trading Strategy

Forex Trading

If you’re reading this article, then you already know how to choose the best Forex broker out there, right? Now it’s time for the more complicated things.

We talk about approaching a trading strategy that would help you round up a profit until you develop your own. Since most professional traders have their own strategies, it goes without saying that trading strategies are more personal than we’d think. After all, it’s more about the trader’s feel than about the need for making money.

Without any further ado, let’s take a look at the things you have to do to choose the best Forex trading strategy for you!

Step 1 – Timeframe

As you might know, there are multiple types of Forex trading. In most cases, you can’t do them all. As such, your first important decision related to strategy is connected to timeframe.

To be more specific, you’ll have to choose between:

  • Swing Trading – this is often referred to as long-term Forex trading, mainly due to the fact that it can be weeks until you’ll close a trade. Swing trading also implies less time spent looking at the charts – and maybe more time speculating.
  • Day Trading – this, on the other hand, is a type of trading that requires daily, sometimes even hourly attention. This is for those that want to make a career out of trading. 
  • Scalping – this, ultimately, is the more stressful type of trading, especially for beginners. While scalping, traders usually open and close trades in around one to 15 minutes. They are looking for the small profits, but in large  amounts, so to speak. 

Step 2 – Risk to Reward Ratio

Most new traders look at a strategy’s winning ratio while searching for the right one. This is, more or less, a bad decision. A 90% win-rate strategy is certainly dazzling – but a failed trade using such a strategy might cost you your entire trading account.

The best call is to search for a strategy that has you lower the average purchase price in your trades, thus taking fewer risks. In trading terms, a 1:3 risk to reward ratio is ideal for all types of traders – except for the high-stakes ones. 

What’s the point behind playing it safe? It’s easy. You want to keep, as they say, losers short and winners big

Step 3 – Risk Management

If the strategy you want to use or create doesn’t have a risk management plan, then you have to go back to ground zero and literally start learning to trade again.

For example, the worst thing you can do to your portfolio is to trade without a stop-loss. This means that your strategy implies sticking to a trade until you run out of money. Regardless of what type of trader you are, you know that this is a wrong call!

Moreover, moving down your stop-loss is also a big no-no in the trading world. If you are too flexible with the stop-loss, it’s pretty much like not having one in the first place.

Ultimately, most trades made using a certain strategy boil down to risk management. You have to know how much you can invest, trade, and lose before you call it a day. 

Step 4 – Multiple Ways of Trading

Some traders say that you should never trade in just a single way within the same strategy – or use only a single strategy. This applies in the real world as well – nobody likes a routine, so why would the Forex market be any different?

Having a trading strategy with multiple available setups means that you can seize more opportunities than usual. Naturally, more opportunities translate to more profits – or at least to a 50/50 ratio between profits and losses. If you have fewer setups available, you might be missing those golden chances

Step 5 – Compatibility with the Strategy

Depending on how much you can invest in your trading account, you should give a chance to various trading strategies out there. If you’re short on money, then make use of demo accounts. Why?

Well, before employing a strategy, you have to make sure that you’re compatible with that way of trading. A lot of people prefer copy trading, but some hate it. The same applies to those that love scalping – they do love it, but the majority stay away from it. 

Even though trading can be extremely technical, you still have to be doing what you love in order to be successful.

The Bottom Line

We’re certain that you came across, or will come across, multiple trading strategies out there. But, at the same time, we can say that, for most of you, you didn’t like this or that about them. That’s the joy of trading – you can eventually create your own trading strategy and rock the market!

But to get there, you have to work hard and understand how every other strategy works. This means knowing their advantages, disadvantages to say the least!

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