Choose Your Best Strategies – Forex Trading Strategies

Forex trading revolves around currency trading. The value of the currency can rise and fall as a result of different factors that include economics and geopolitics. The changes in the currency value are what factor in the profits for Forex traders and this is the main objective of getting into the trades. The trading strategies are sets of analysis used by the traders to determine whether they should sell or buy currency pairs at a given period of time.

These strategies can be technical analysis charting tools based or news based. They are made of a multiple of signals that trigger the decisions whether to buy or sell the currencies a trader is interested in. The strategies are free for use or they can also be offered at a fee and are usually developed by the Forex traders themselves.

The strategies can also be automated or manual. Manual systems require a trader to sit and look for signals and also interpret them so they can decide whether to sell or buy. Automated systems on the other give traders more flexibility because they can customize software to look out for specific signals and interpret them. Trading strategies may not be all that perfect in making money, but when you have a sound understanding of what they are all about, it becomes easier to adopt reliable approaches when trading in the currencies.

Forex Trading Strategy Types

There are so many strategies out there that can be used by Forex traders. The most important thing would be for the trader to decide what strategy matches the kind of trading experience they wish to have and what strategies offer the best signals for interpretation so the best trading moves can be taken. Below are some of the top strategies most traders use and some you should consider if you are a beginner in the markets.

Forex volatility strategies – The Forex market can be volatile, meaning that the prices can make very sharp jumps. Volatility systems are created to take advantage of the price actions and are usually best for short term and quick trades. The systems are also based on volatility increase and whereas their winning percentage of trades may be higher, the profits earned per trade can be comparatively low. This strategy is best for traders and investors who understand the volatility perception.

Forex trend following strategies – These strategies use market trend marketing to guide traders towards their long term trading goals. Moving average, current market price calculation and channel breakouts are commonly used to generate signals and decide the best market direction to take. Instead of predicting or forecasting prices, traders using these strategies only follow the market trend.

Forex scalping strategies – Scalping in Forex involves making multiple trades with each of the trades making small profits individually. When using the scalping strategies of trading, the profits are usually anywhere between 5 to 10 pips for each trade. These strategies require constant Forex market analysis and the trader also need to place multiple trades at once. They can be pretty demanding and traders need to be relatively fast in predicting where the markets are headed so they can open and close positions in the shortest time possible.

Forex pivot point strategies – Pivots make it possible to identity entry points especially for range bound traders. These points are also helpful to breakout traders and trend traders in spotting key points that need breaking for given trading move so they qualify as breakout. Traders who understand pivot and calculations around it will find these strategies quite helpful in trading currencies. It is important to remember that calculating pivot using closing prices of the short time frame reduces significance and accuracy of the point of rotation. The calculations need to be precise because they make the Forex market backbone.

Forex chart pattern strategies – Charts are vital in Forex trading in assisting traders in the markets. There are different chart patterns that can be used when trading, but the most common patterns are triangle and head and shoulder. Triangle patterns occur mostly in short-term time frames and can descend, ascend or be symmetrical. Price converges with low and high creates the triangle leading into the tight price area. The head and shoulder pattern on the other hand is more like topping formation when an uptrend occurs and bottoming formation when there is downtrend. The pattern will usually complete in Head and Shoulder when the trend line is broken.

Forex Renko chart strategies – Renko charts are constructed when price surpasses bottom or top of the previous brick by pre-defined amounts. When this happens, the brick is moved in the next column. White bricks are usually used when the trend is up, whereas the black ones are used when the trend is down. This type of charting is useful in identifying key resistance and also support levels. In Renko charts, time and volume really have no major role. You will find all kinds of trading strategies that are Renko chart based to assist your trades.

Other Forex trading strategies you can use are the Bollinger Bands, Forex breakout, Forex support and resistance, Forex candlestick and Forex swing trading strategies.

Picking the best Forex trading strategy

With so many trading strategies available it can be challenging for traders, especially beginners, to decide which way to take. But using a few tips you can have an easier time choosing the best.

Set trading goals and decide whether to go long term or short term. It also helps to decide whether to trade full time or part time. This way you will be able to choose the strategy that best suits you as a trading individual.

Choose a unique strategy by comparing strategies and what they have in store for you. If a strategy does not seem to lie in your best interest, then it is not the right one for you.

Experiment on the strategy you prefer before settling for it. Experimenting first gives a chance to have a deeper understanding of what the strategy is all about and see whether it has worked for other traders in the past or not.

It is also important that you get familiar with trading styles so you can choose the perfect strategy for your trading. For instance, short term traders should consider trading styles like day trading, scalping, position trading and swing trading among others.

For Your Information – The Largest Forex Trading Platform

The Forex have advanced from the humblest of beginnings to the world’s largest market by dollar volume. With many different entry points, hedgers and speculators can find what they are looking for. Whether they pursue a more complex strategy or simply want to hedge their everyday currency risk, the Foreign Exchange markets provide the liquidity and instruments for trading in currencies.

Hedging simply hedging implies controlling or reducing the risk. It is an investment position that is used to reduce any substantial losses or gains undergone by an individual or an organization. This is done by taking a position in the futures market for limiting risks associated with price changes.

In other words, the hedge is 100% inversely interrelated to the vulnerable asset. A hedge can be built up from different types of financial instruments such as stocks, exchange traded funds, forward contracts, insurance, future contracts and many types of derivative products.

The Power of Risk/Reward and Hedging
Since Forex trading is a risky one, understating the usage of Stop Loss and Take Profit orders is imperative in trading. Stop Loss (SL) and Take Profit (TP) are used for hedging the risk and rewards of the trader for realizing the profits and minimizing the losses.

There are several methods that traders/investors with a lot of money implement in order to reduce the risk of their trade. One of these techniques is called hedging. Hedging is basically making twofold investments, one investment which will make as the main investment and the other, less risky investment supposed to offset any potential losses incurred from the main investment. It involves reducing the risk that one faces while indulging a business deal. In short, hedging is fundamentally a method which secures the future income.

eToro is a social trading App that places an automatic Stop Loss order on all trades so as to prevent the trader from losing more than he has invested. If the rate of his open trade falls below what is covered by his investment, then the trade is closed by the automatic Stop Loss automatically.

By setting a Stop Loss order a trader makes sure that the value of his trade does not drop lower than a certain level. This way the trader control the maximum amount that he is willing to lose on a trade, without having to check each trade throughout the day.

Take Profit orders are also similar to stop loss orders which only meant to profits. TP orders make sure that once the trade reaches a certain level of profit it will be closed.

Effective Money Management in Forex.
In the Forex market, money management or Risk Management is the key factor which should be seen as a positive element. Money Management is a defensive concept which keeps the trader in funds so that he can trade another day and bears outs profitable performance. It is the key factor that is the difference between success and failure. With risk management the trader needs to manage his means to achieve his ends. Sometimes it is absolutely the right thing to do to get a loss so as to avoid making much larger and more catastrophic losses to his hard earned funds.

For a trader, the proper usage of trading plan is very important that lays out strategies for the trading activities. Helping traders to manage their money and the risk exposure are the practical uses of such plan. The plan should comprise details of what risk level the trader comfortable with, and the amount of capital he has to use.

A trader should really adhere to the levels of risk that he draws in his plan. If he desires to make low risk trades, then there is no reason why he should start exposing himself to higher levels of risk. It is often tempting to do this, probably because the he has made a few losses and he wants to try and fix them, or maybe he has done well with some low risk trades and want to start increasing his profits at a faster rate.

The risk management and the wealth management are to be exercised with a proper strategy, then most possibly there are high chances for getting good profit. A good quality money management strategy helps the trader to survive a losing streak. To do that, it needs to be flexible. A trader should not invest a fixed amount per trade, but a fixed percentage of his starting balance.

Remember, money management is very simple to exercise, but not as simple to carry on. Once the trader developed the money management system that works for his trade, make sure to stick with it and do not let his emotions get in the way of long term profit, although it means absorbing short-term losses.

 

Choose your Best Option – Forex EA’s Vs Managed Accounts

Back in 2008 when commercial EA’s were just entering the Forex market, some of us believed that if you have a good system, all you need to do is automate it, place it on a chart, “set and forget it” and you can then start planning your dream vacation.

However, over the years, many of us came to the realization that automated systems do not last forever. As markets are always changing we need to continuously adjust, tweak, or change our strategies to keep them functional.

The hard truth is that markets simply do not care about trading systems, and sometimes it may seem as if it’s deliberately trying to undermine them as well.

Therefore, when using an EA, it’s imperative that:

1. You fully understand the logic behind the system. (If you don’t know how the system works, how will you know when it’s not working?)

2. You monitor the markets and are up-to-date with anything and everything that can affect it.

3. You are able to make calculated-risk decisions for when manual intervention is needed.

We found that the best systems which work long term are ones where there’s a mix of automated and manual trading.

For better or worse, we’ve seen traders who took EA’s and modified / tweaked it for their needs. Those who understood the system and incorporated manual intervention when needed, did quite well.

One of the good aspects of automated systems is that there’s no human emotion involved, however, although our emotions can wreak havoc to any good system, sometimes human intervention is needed to preserve the system.

So, what if you just don’t have the time to monitor the markets or don’t fully understand the system to know when or how to manually intervene, what are your options?

There are a few options, like managed accounts, signal services and trade copiers which are all similar. You’re basically letting professionals do the work for you.

With Signals and Trade copiers, the provider usually gets a commission from each trade they initiate or a monthly subscription fee. With managed accounts, the provider usually gets a performance fee that is applied to the net gains of the client’s account. This keeps them motivated to always look out for the benefit of the clients investment.

Managed Account Features:

– Managed accounts tend to use private systems that are not available to the general public.

– There’s manual intervention by professional traders, when needed.

– There’s no need for a VPS.

– Most managed accounts use a high-watermark performance fee structure. (You are only charged on net gains).

– There’s no need to worry about updates or adjustments to the system.

– No upfront payments or recurring subscriptions. Performance fees are usually deducted from your broker account.

– There’s no learning curve or trading experience needed to benefit from the system.

– There’s no need to monitor anything. You can just go about your day, and hopefully plan a nice vacation.

Summery:

If you’re an experienced trader who has a good understanding of the market and are committed to spending time monitoring it, then Forex EA’s are a great tool for you to enhance your trading.

However, if you don’t have the time or resources to monitor the market, or do not have the essential background to understand it, then a managed account or a trade-copier is the way to go.

Please note:

Forex EA’s still work, some very well. However, when using an EA it’s important to follow the 3 steps listed above, and you must also be ready to manually intervene with the system, when needed.

We hope that this information has been of help if you’re involved with Forex trading.