We are going to dedicate this article to FX trading strategies, which is specific trading algorithms allowing you to trade for profits.
This article will let you learn the following:
- what are FX trading strategies
- why you need trading strategies
- various types of trading strategies
- capital management rules
- how to choose a trading strategy
What is a trading strategy?
Any professional activity requires a certain plan. Professional traders need trading strategies to avoid reckless trading through:
- determining the entry and exit rules
- determining the money management rules
This leads us to believe that a trading strategy is a set of trading and money management rules, which are required to be followed at all times to show consistent results.
Why do you need a trading strategy?
Can you trade Forex without a trading strategy? Yes, you can, but this is going to lead to losses. It’s impossible to trade financial markets successfully without a profitable strategy! Indeed, trading is a rather complicated type of human activity, whatever those commercials say. Even if you get exclusive trading software with excellent features and intuitive user interface, this doesn’t necessarily mean that you are going to be a winning trader making money effortlessly. Trading Forex or any other financial market is a serious activity, which means it requires a serious approach. That’s why you cannot afford to gamble here, if you want to trade Forex for a living. You bet your money to win more money. Reckless trading is a sure way to losses. That’s why your trading needs to be planned and guided in a certain way. The best way is to get yourself a nice trading strategy and get yourself up and running with it.
Types of trading strategies
There are several types of trading strategies for FX. For starters, they can be of 2 major types: those based on technical analysis and those based on fundamental analysis.
Strategies based on technical analysis imply using technical and charting tools to make predictions used to enter and exit a trade. For example, if we are talking about the “Victory” trading strategy, the best time to enter a trade is the situation when the price rebounds from the top of the sloping channel:
There is another strategy. It’s called “20 points a day”. The trader gets a buy signal if the price breaks above the Moving Average and the signal ling of the Momentum indicator also breaks above the indicator’s central line:
Strategies based on fundamental analysis imply analyzing daily macroeconomic reports to make trading decisions based on the data. Those reports are scheduled and released throughout the trading week, including unemployment rate, consumer confidence, interest rates, GDP etc. based on the data, traders make their trading decisions. For example, if the GDP report indicates a slowdown, the country’s national currency is very likely to get weaker against other currencies since this means a weaker economy. Or if the central bank raises the interest rates, this makes the national currency stronger.
For example, when the Federal reserve (USA) raised the interest rate by 0,25% during the latest meeting, this is made the U.S. Dollars stronger against other international currencies:
EURUSD instantly dropped down, which means that the Euro got weaker against the U.S. Dollar as the U.S. Dollar got stronger against the Euro.
In this case, the task is to analyze the calendar, find major news, wait for the news, and trade accordingly.
Also, trading strategies can be divided depending on the trading approach:
Trading with the trend
Trading against the trend
Martingale strategies (double your bet each time you lose)
Strategies based on pending orders
Math strategies
Scalping strategies
Intraday, mid-term and long term strategies and so much more.
Money management
This is an inseparable part of any decent trading strategy. It makes up for 50% of success.
Money management is all about managing your capital wisely to avoid major risks and losses and being able to withstand drawdowns, which are inevitable since no trader can win 100% of the time.
Conservative traders never invest more than 1-2% of the entire capital in a signal trade. They think about saving their money first and multiplying it second.
Aggressive trader risk over 5% per trade on a regular basis. Some of them may even go all in, as poker players say. This is too risky and usually brings nothing good over the long term. So, avoid aggressive trading styles.
Why to choose a trading strategy for a beginner?
Practice shows that the best choice for most beginners is a strategy based on technical indicators with 100% clear algorithm and no ambiguous signals. For example, some indicator triggers a signal and the trader buys or sells the chosen asset depending on the direction of the signal.
You can also invest of PAMM accounts to get passive income. For the purpose, it’s necessary to choose them wisely. We recommend using pro-rebate.com for investment purposes. Good trading and investing!
