Before explaining the forex trading strategies, I would like to describe what is strategy means:
A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem.
In forex trading finding a forex strategy can be a bit of a challenge, especially to new traders. Trading strategy is a defined set of rules and guidelines for trading according to your needs. I like to look at trading strategies in 3 categories:
- Trend Trading
- Range Trading
- Range Breakout.
A good strategy should include rules for entries and exits, as well as risk management.
There are some essentials that need to be taken into consideration when trying to decide on a trading strategy, we need to understand that every trading strategy doesn’t fits on every type of trader and every type of capital. Most of the traders are asking same questions when they first start trading.
How long should I hold my trades?
If you are comfortable holding your trades for days or weeks, you might like swing or position trading. If you are willing to hold your positions for long term your leverage shouldn’t be more than 1:5.
However, if you find that you lack the patience or inclination to trade in this way, day trading/scalping would be a better choice.
What is my trading personality type, and how will it affect my trading?
As i mentioned it earlier you need to know your trading personality; your budget, your financial goal, your patience, risk taking level .
If you are someone who feels a constant need for action, you r account should be more liquid and will be more drawn to scalping. This statement however, is not an absolute, as it is possible to adapt especially in cases where scalping or day-trading is not an option due to time constraints. Our innate personalities often conflict with trading as a whole, making it difficult to succeed.
What market conditions do I intend to trade in?
Every currency pair has his own characteristics, before you open a trade you need to check the history of the asset what we are calling is trading setups. You need to learn the way where he is coming from and where he targets. While you are analyzing trading setups, support and resistance levels and indicators will help you to predict the direction and your next movement. There for you can understand if the market is ranging or trending Most strategies, unless specifically a range trading one, are not equipped to work in ranging markets. That is why, at the outset, the trader should consider this potential problem, and specify exactly what the market conditions are that he is prepared to, or are interested in trading in. From this point he can proceed in developing the relevant strategies.
How much draw-down are you comfortable with?
This is an important consideration because many trading methods get cast aside unanticipated draw-downs. These are often profitable over time, but an extended period of draw-down can make them unacceptable. A major problem here is the fact that the system might not have been tested as thoroughly as it should have been, in order for the trader to acquire reasonable expectations regarding the strategy’s performance. This is an important factor that traders should always give thought to before incorporating a new trading strategy into their trading personality.
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