Forex Trading Strategies
There are probably more forex trading strategies than there are forex traders. With so many strategies to choose from, how does one go about choosing the right one? Is there even a “right” one to choose? Aren’t they all the same in the end?
This article aims to provide some important information regarding forex trading strategies that might help those who are trying to find a good strategy but does not know what to look for.
1. Talking the talk
If you were looking to buy a new car it would be a good idea to first get accustomed to the common terminology used by car dealers. This way you know what questions to ask. In the same way, the first step when scouting for a trading strategy is familiarizing yourself with Forex jargon.
This will help you so that you know what to ask and what look for. There are many scammers on the market offering fake and useless trading strategies. Knowing what to ask for will make you less of a target for the scammers out there.
2. Knowing What to look for
• Is it traded in live markets?
Any strategy might look amazing in theory or on a demo account. However, in live markets the best theoretical ideas can and often do fail. Thus, ask whether the strategy is currently used in live markets. Also ask whether they trade it on live accounts or demo accounts. This will have a tremendous effect on the profitability as live and demo markets have different spreads and execution speeds.
• Has it been used for a while?
Has the strategy been used long enough to know whether it can withstand changing markets? Some traders will tell you that back testing is useless because success achieved in the past cannot be indicative of future results. They are right to some extent.
You see, it is true that the historical results of a strategy cannot guarantee future success. However, it is good to know whether a strategy have had success in the past as well as the present. This will tell us whether it is resilient to the ever changing market behaviors.
• Does it only work on certain currencies or timeframes?
Another thing to look for is whether the strategy is dependant on only currency pairs and time frames. Some strategies are optimised for specific pairs and time frames only.
From my experience, strategies that rely too heavily on optimisation and only works on certain pairs and timeframes are too unreliable. Constant tweaking and programming is needed to find the perfect settings.
This does not mean those strategies are bad. It simply means be careful with your decision. Putting too much faith in rigid strategies which only work on certain currencies or time frames is dangerous.
• Is it simple to understand?
Some forex trading strategies are just too complex for beginner traders. Some are even too complicated for seasoned traders.
Make sure the strategy is simple to understand. Beginners often assume strategies that use many indicators which lights up their screens like a Christmas tree provides more accuracy.
Some even believe these types of strategies provides more trading success and less risk. However this is simply not true. Often times the most successful strategies are the simplest ones because traders can grasp them sooner and execute them easier. Not that trading forex is ever easy!
• Don’t think more is more
Some trading strategies are way too expensive for what they are worth. Do not believe it if they claim to make you a millionaire in a week, which is blatant false advertising.
Check out our article Forex Trading is not a get rich quick scheme. We have taken many trading courses at ridiculous costs, and our conclusion is that less is more. The reasonable priced strategies and forex trading courses are normally just as effective.
Other Things to consider
• Available Time to trade
Make sure the strategy can realistically fit into your lifestyle. For example, a day trading strategy focussing on the 5 minute time frame might not be a good choice if you have a full time job.
If it does not fit into your lifestyle you will eventually find excuses not to trade.
• Available Time to study
If you know that you will only have limited time available to trade do not choose a strategy that will require 3 hours of studying per day. Try and find out from others who trade the strategy how long it took them to get proficient with the strategy and plan accordingly.
It is important to note that everybody is different and you cannot compare yourself to other people’s abilities. However, getting some insight in this regard won’t do any harm.
• Available Funds
If a strategy requires you to trade with huge amounts of money be careful. You need to trade within your means.
You should never trade with money that you are not prepared to lose. Any good forex trading course will teach you this in a lot of detail.
Motivation for Trading
Have you considered the reasons why you want to trade Forex in the first place? If you are doing it in the hope of becoming the next Warren Buffet in a few weeks walk away now.
That type of mentality will cause you to lose all your money. Your motivation for wanting to trade should be more than just getting rich.
Otherwise you will approach trading like gambling and not as a business. Please read our article Is Forex Trading the right choice for me for more information regarding your motivation for trading.
Whatever strategy you decide to trade with, always remember that there is no such thing as a perfect system. No strategy or trading system will make you a better trader or give you guaranteed success.
The strategy you choose will only count for a small part of your trading success. When you have made your choice make sure that you stick to that strategy and practice it until you can comfortably trade it.
Don’t hop from one system to the next hoping it will make you better. Consistency in trading is not dependable on the strategy you use. As always we advise you to invest in proper Forex Training before you risk real money in trading.