FOREX

Which strategy to choose for the forex market? – ForexLive


Identifying the best strategy in the forex market


A trading strategy is a list of rules and conditions
by which a trader makes trades in the currency market. Each trading strategy
has its detail and nuances that one needs to know and understand. If understood
correctly, a trading strategy will work efficiently.

Today, the
choice is just vast, and beginners have trouble making the right choice. They
have to spend lots of time searching for and testing various strategies until
they find the one they manage to understand up to the tiniest detail. This
topic has, indeed, been created for helping beginners in choosing a strategy.

Quite often
we hear about “trading systems” and, logically, beginners have a
natural question: what is the difference? A trading system is simply more
complicated than a strategy, it has more indicators, entry conditions, nuances
and details. Of course, it is harder to master.

Strategies
in the Forex market are of the following
types:

  • Trend
  • Flat
  • Indicator
  • Non-indicator
  • Algorithmic

These are
basic types, and all strategies originate in them. Remember that trend or flat
strategies may or may not include indicators. In other words, there are tactics
of trend detection that use indicators, and there are ways of detecting the
trend direction by simply drawing lines on the chart. Similarly, in flats, you
may or may not use indicators.

Algorithmic
strategies are absolutely universal. They can work both in trends and flats and
are not bound to any instrument. This means that a strategy meant for gold in
Forex will work equally well for currencies.

Indicator trading
strategies in Forex

These are
strategies based on indicators. These may be standard indicators found on any
trading platform: various oscillators, Moving Averages, volume indicators, etc.
There are also strategies based on user indicators created by traders. As a
rule, such trading strategies are simple to learn, at least the majority of
them. They have not as many rules and conditions, there are clear directions of
use, and you do not have to act on your own.

Some
indicators and their application in trading:

Non-indicator strategies

Such
trading uses a clean chart, with just lines on it: trendlines, support/resistance levels. Basically, they
are drawn by beginners only for the sake of easier perception. More experienced
traders understand everything about the price just as it is. Non-indicator
trading looks like a most interesting topic to me, and I am sure that beginners
should master at least the basics to maybe include those techniques in their
collection later.

Main types
of non-indicator trading:

  • Working
    with breakaways of/bounces off support/resistance levels. These levels, in
    turn, can be divided into horizontal and trend ones.
  • Working
    with classical reversal and trend continuation patterns. These are Head and Shoulders, Inverted Head and Shoulders, Double Bottom, Double Top,
    Diamond, Triangle, Flag,
    Pennant.
  • Elliott wave analysis
  • Candlestick analysis. Various candlestick patterns and
    combinations.

I have
enumerated the most popular types of analysis. Yes, this is analysis, not
strategies, each point cannot be called a strategy. Trading without indicators,
you need to master these types.

I advise to
study the following topics to beginners:

These
methods are quite simple yet dangerous. They can be divided into two main
types:

Martingale

Martingale
method
is,
basically, multiplication. For example, there is an order open for 0.01. A Stop Loss is triggered, another one opens
with a volume twice as big as the first one.

Averaging

Unlike
Martingale, orders are never multiplied or closed here. For example, there is
an order open for 0.01, there is a slump by 100 points, and another order opens
in the same direction with the same volume. If the price goes back by 50%, the
overall position will reach zero, and if the price continues going in the same
direction, profit will be growing.

These are
just several words about the methods. When creating strategies based on them in
Forex, there might be variations. For example, you can unite Martingale and
Averaging, doubling the volume not by 2 but by 1.5, and then with each open
order you will need a smaller pullback. However, these methods and their
combinations are rather dangerous and I would not recommend beginners to start
with them. They can, indeed, bring a stable profit but you should realize that
it will not be large because the working volume will be small against the deposit, and if you increase it, you
might lose everything.

Best strategy in Forex

Beginners
might ask: which strategy is the best? I say that it is the one that you
understand perfectly, customize with time, supplement if needed, and test
successfully. This is what each beginner should be aiming at.

Searching for, choosing,
and testing your strategy

Before you
start choosing your strategy, you need to realize how you would like to trade.
There are several types of trading:

  • Intraday (including scalping): you open several trades during the day. People
    who trade intraday try not to transfer positions for the next day.
  • Short-term
    trading can also be called “intra week”, i.e. trades can last several
    days.
  • Medium-term
    trading: trades can last from a week to several months.
  • Long-term
    trading: I would call it investments in currency because trades can last for
    years here.

For trading
intraday or scalping, non-indicator trading will be
a bad choice. In this case, select an indicator system customize it, test and
experiment on a demo account. If you
aim at calmer trading, you should not doubt and start learning a non-indicator
strategy.

The best
place for choosing strategies is various forums for one main reason – live
communication with people who share the same interest (trading in our case). On
a forum, you choose something g of interest to you and start studying. Read not
only the rules but also the comments of users as they may content important
answers and questions. Also, on a forum you can ask questions to the author and
get an answer fast, unlike on websites or blogs. Also, nowadays many shoot
videos with Forex trading, which might improve your understanding of chosen
strategy.

Start
testing only if you are sure that you have realized well what you read,
including all the details. Then start trading on a demo account, and as soon as
there are stable results, switch to a real account.

By Dmitriy Gurkovskiy,
Chief Analyst at RoboForex

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