Which are successful forex trading strategies?
Should the forex strategy be based on the principles of fundamental or technical analysis?
How to select the best forex trading strategy?
In the world of foreign exchange markets (forex) trading strategy is essential for your performance. In this article we will focus on successful practices for building forex strategies. But why do you need forex strategies? In order not to turn your trade into a casino, you will need clear rules to follow. This way you will know when to buy and when to sell. How to choose the best forex strategies according to your individual trading style? The good news is that you can trade forex and test forex strategies without the risk of losing real money. What you need to do is open a free demo account at forex broker and perform tests.
Strategies are based on individual style
Everyone has a different behavior in the currency markets. Therefore, the best strategy is one that fits your personality and individual trading style. Some traders prefer to make frequent trades for short periods of time. Others prefer long-term strategies in which open positions are held for days, weeks, and in some cases months and years.
It's not a purely individual technique, but it's certainly a trading method. Transaction replication is simply the use of software to reproduce (or duplicate) trades across several trading accounts and through various networks. It helps the handling of more than one MetaTrader account at the same time as effective risk control.
Arbitrage trading is a strategy that has been used for trading as a way to profit from price discrepancies of assets in the market. Like all types of strategy, arbitrage comes with risk. Understanding the different risks involved when arbitraging an asset and the status of different markets will provide more strategic options for traders during market volatility. Arbitrage describes the act of purchasing an asset in one exchange and concurrently selling the same asset in another exchange, thereby allowing investors to profit from the price discrepancies in the cost per asset. These discrepancies occur when exchanges and financial institutions are differently pricing an asset. Arbitrage opportunities exist because of market inefficiencies and would not exist if all markets were perfectly efficient.
This is the fastest trading style, in which trades open and close sometimes in seconds. This type of traders strive to realize a positive result from the smallest movements in the price of a particular currency pair. Therefore, they often close their open positions with only a few pips of profit.
Due to the high rate of transactions, this style of trading is not suitable for everyone, especially for beginner traders. Scalpers rely on the signals they receive from short-term technical analysis and trading during important economic news, when there are often sudden and strong price movements. They use extensively algorithmic trading software, which can vastly outperform manual trading.
It is also a fast-paced trading style in which positions are kept open for relatively short periods of time, traders open and close their positions during the day or within a specific trading session. Unlike scalping, where mostly one-minute and five-minute charts are used, traders rely on 30-minute and one-hour charts in daily trading.
In this style, trades remain open for days or weeks. In swing trading, traders are exposed to the risks of changing market direction during the weekends and even at night. On the other hand, the costs are significantly lower, as the number of transactions is many times smaller. The longer horizon allows swing traders to bet on higher price movements.
With this style of trading, the number of trades is the lowest, but the lifespan of the trades is the longest, as in some cases traders keep them for several months. Long-term trading requires in-depth market analysis. Over longer periods, there are more factors that could affect the price and could permanently change its direction. On the other hand, the costs of opening and closing positions here are the lowest. Response time is also significantly longer than with other strategies, and last but not least, you do not need to watch the graphs constantly.
All successful forex strategies take into account these differences in trading styles. Therefore, you must first determine which style suits you best and determine the time you have to analyze and monitor the market. Once you are aware of this, you can proceed to the choice of your forex strategy.
Related article: Which market analysis is the best?