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Forex strategy

Forex strategy overview Johannes Röll Visitors: 482 ★★★★★

Choosing the right strategy does not come easily because we have no universal answer about the efficiency of any existing strategy. But you can make it simpler if you decide on some key points about your trading. First and foremost, you should know when you can trade. No has 24 hours a day to be on the Forex market. As much as smartphones come to rescue when you are not at home, it is not enough (for example, some people have a full-time job and they cannot use their phones).  

So you need to make a decision on what timeframe is the best for your situation. For those who can check graphs only once a day would appreciate strategies like Forex Gambit, when you are working with day graphs. However, if you have a bit more time to spare, you can consider H4, H1, M30 timeframes or lower. There are all around strategies though, which work in any timeframe. Once you have that part figured out you still have plenty of choice and that means more decisions. Below are several trading styles that most strategies are based on. As soon as your preference is set, you can elaborate on a specific strategy.

Scalping strategy system 

This system involves short-term trades which stay open for a few minutes. You are looking for those small inefficiencies. Some people say it is a hard way of making a living and they are probably right. Tricky and challenging are the words to describe this trading strategy. However, in the correct surroundings it can actually work for you if you have the temper for it. 

One of the ways of approaching this is segmenting a day into a specific structure. If you are trading currencies, you might trade from 8 o'clock in the morning to 10 o'clock to coincide with the Footsie and European opening, and then you might shift to the dollar pair. It essentially depends on where you live.    

If you choose trading momentum or countertrend, it will significantly reflect in you results. The danger of scalping is that you are going to get caught up with the noise of the market. It calls for an organized system so that you will not overreact. One thing you might like to do is fade fakeouts. To put it differently, when the market is trying to reach a new level and it stops, you take a countertrend trade. The point with scalping is that you are very strict with your stop-loss. You probably have no time to put the stop-loss in but you have to be disciplined. If it is not working, you are out. 


Swing strategy system 

Most people think of it as just support and resistance. Technically, that might be the case but it definitely much more than that in a lot of ways. It is a trend following strategy. Traders who stick to this system wait for small reversals to enter the trade in the direction of the main movement. For instance, in a main uptrend, swing traders enter on a minor pullback in expectation that the price is going to proceed back to the uptrend. To put it differently, they buy on dips and sell on peaks. They take advantage when the buyers are taking a breath and let the price ease down a little bit; they would enter at that bottom and reverse it when the price is going down.  

At some point the sellers get exhausted and the price recovers for a little bit and at a down-trade they would enter when it peaks to take advantage of that little movement. They are anticipating that the asset will continue in the same direction it is going overall in the nearest time, could be a week. When it peaks down, they know that it at least is going to bounce back to the same place where it was. You will buy it and let it run. You can place your stop-loss slightly farther from the market price so that you trade does no end too early. And also your target profit are placed a bit further away so your risk to reward ratio is at least 1:2 or higher.  

Generally, there are fewer capital requirements. You are making fewer trades in a day so your transaction costs amount to a smaller number. You have a lot more time to analyze a certain trade. When swing traders trade, they leave they trades running for more than one day, sometimes a month or more. Therefore, it is more suitable for people working a full-time job. Swing trading is a lot more relaxed and leisurely. 


Intraday strategy system 

As you can tell form he title, all the trades are made (opened and closed) in the course of one day. What you are trying to do is to profit from small price movements. Following this system is fairly easy; there is no ambiguity which people often come across in unfamiliar systems. You do not need any special tools, only Awesome Oscillator indicator and the grasp of the rules. Intraday appeals to many people because you have a set working day; since you have no open trades, you can finish the day in peace without thinking what is going on in the market. Forex work around the clock, so even if you technically finished, prices changes still take place. 

There is a myth that in any time interval we observe similar price combinations so it is similar to trading on bigger timeframes. However, this is not the case. You plan could look like this: determine a dominating movement (trend) on a day graph; wait for correction time (movement against the trend) on H4; wait for it to resume moving in the previous direction on a H1 graph in order to enter the market. 

Intraday showed to be less efficient it takes a lot of effort, it does not have the best win rate and predictions are hard to make in this situation. You can use this strategy as a complementary tool to a medium-term trading. Basically, you trade medium-term and use intraday to determine the best possible enter point with a small stop-loss. You know the direction of a trade due to a bigger time-frame and it increases your chance to succeed. With this method you do not need to look into graphs day and night. 


Position trade strategy system  

If you fancy trades that stay open for long period of time (from a month to several years), look into this one. In comparison with short-term trading, position trading is not as widely popular because it requires big deposit and a lot of patience. Some people treat Forex as a wild adventurous pastime and not a job. They prefer opening and closing trades fairly quickly and do not aim to make that much profit. Position trading, on the other hand, can be very beneficial despite the fact the results take a long time to develop.  

The main advantage of this style is predictability. When you deal with large time period, macroeconomic factors play insignificant role if you compare to an intraday style. Therefore, position traders opt for fundamental analysis. You experience much less emotional strain because we do not worry about small price movements. You also do not lose on spreads constantly opening and closing trades. 

The disadvantages include, as stated above, need for a high deposit. If you start with a small one, you make yourself vulnerable as large oscillation movements can leave you with nothing. Additionally, even if the risks are much lower, if you make a mistake, the consequences are more severe. You not only lose the deposit and also time. 


We should mention that one completely identical strategy may work out differently for two traders. There are several reasons for this occurrence. The first one is emotional characteristic. One person can be more disciplined and another one – more relaxed. Real life trading sometimes plays out in an unexpected way so you cannot blindly trust strategy history. The second one is based on a fact that many people generally follow a strategy but make certain corrections to it. Some enter/exit in a slightly different manner, add their own filters or trade strictly at a particular time. The list goes on but the point is that success depends not only on the strategy of choice but how it was applied. 


Johannes Röll
Johannes Röll

Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer

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