Many successful traders use their own trading strategies, which allow them to achieve good results in any market movements. Having passed the stage of unsystematic trading usually accompanied by losses, beginning investors are faced with the problem of finding an appropriate strategy. Trading strategy helps traders to assess the state of the market according to specified criteria, accurately determine the entry and exit points and respond to signals in trends in a timely manner. Following a chosen strategy, a trader protects themselves from unjustified decisions, fundamental mistakes and inaction. In addition, they protect themselves from mistakes caused by stress, euphoria, fear and other emotional states.
A trading strategy is a profit-making plan that includes the criteria for assessing the market and a set of trading rules that help with making quick decisions. There are no universal trading strategies suitable for all traders and investors. Each participant of the Forex market has their own trading goals, points of view on the market, temperament. For example, a conservative trader can consider the operations profitability of 5% per month more than successful, considering the desire to achieve greater profits for that person is an unjustifiable risk. An aggressive trader is ready to risk their capital seeking to achieve a profit, which can amount to tens of percent per month. Therefore, all investors tend to choose trading systems that correspond to their individual beliefs about success, the degree of acceptable risk and other views. Criteria for choosing a trading strategy:
Determine your preferred method for you to analyze the market situation and forecast the development of asset prices to assess the trading system in accordance with your views on the market. If you think that the market always effectively determines the value of the asset and the future price dynamics can be predicted by studying the patterns of their changes in the past, choose trading strategies based on technical analysis. Most Forex traders use this kind of analysis. Trading strategies for Fibonacci levels are among the most popular systems that involve technical analysis.
If you are sure that asset prices change depending on the macroeconomic situation, the state of a particular industry or enterprise and their future dynamics can be predicted by analyzing statistical reports, economic events and other information, choose strategies based on fundamental analysis. Those investors who deal with stocks, debentures, commodity assets, often use this type. The purchase of undervalued assets is one of the most popular investment strategies involving fundamental analysis.
You need to answer two questions - firstly, evaluate how much time you are willing to spend on trading; secondly, determine at what timeframes you plan to trade. If you can trade for several hours a day, short-term strategies that use minute or hourly timeframes will work well for you. Different scalping systems are examples of such strategies. And if you plan to trade only a few minutes a day, strategies that involve the use of high timeframes will be suitable.
Consider your own temperament when choosing time intervals for trading. For example, emotional traders usually try to react to short-term market fluctuations opening and closing positions within a few minutes or hours. Level-headed traders are prepared not to react to short-term price changes keeping an open position for several days, weeks or months.
To use this criterion for choosing a trading strategy, assess your attitude toward risk. The easiest way to figure out attitude toward risk is to answer the following question: "How much loss can I tolerate without closing the position in the course of trading?"
If the acceptable loss for you is about 0 to 5%, consider yourself a conservative trader. Use medium- and long-term strategies with a minimum level of risk. If you are calm about losing up to 10% of the deposit, consider yourself a moderate trader. Medium-term strategies as well as slow intraday systems are suitable for you. And if you are willing to risk 10% of the deposit and more, use aggressive short-term strategies - these include most systems with margin.
Decide whether you will trade on your own or delegating operations to a robot. If you plan to trade on minute timeframes implementing aggressive short-term strategies, choose an automatic way of trading. This approach often involves taking decisions within a matter of seconds, which is difficult for a trader to handle. Moreover, a person gets tired and makes mistakes when they need to act very quickly. If you plan to trade on hourly timeframes and above, start working independently. This will teach you how to maintain discipline and make decisions in accordance with changes in market trends. In the future, you can use automatic trading but the experience of independent trading will increase your competence.
A trader decides how to get the proper strategy on their own – buy it, download it or create one yourself. When choosing the Forex strategy, you need to stop your search at the one that is understandable and suitable in all regards. After all, the same strategy may be unacceptable for one trader and the best choice for another. The correct choice of the trading system guarantees that psychological characteristics and market views will match the practical approaches to decision making.
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