Updated: June 17, 2021
The Forex market is the largest financial market in the world. Most of its participants are traders who earn from changes in currency exchange rates. And like in any market, we can apply one universal principle here: “buy low, sell high”. Your college degree doesn’t matter here, but your discipline and tolerance do. And of course, to trade successfully you need to have a solid trading plan, a strategy.
There are hundreds of different strategies to choose from. Some of them are suitable for beginners, others are more popular among seasoned traders.
How to pick a strategy for novice traders
Strategies are divided into several types, depending on the duration of a trade:
Using a short-term trading strategy, or scalping, the trader monitors small price fluctuations over a short period of time. Scalper carries out dozens of transactions per day, making a small profit from each trade, but the resulting amount can be significant. Unfortunately, scalping is not suitable for beginners because of its complexity. A scalper is a person that has nerves of steel and spends all day in front of the monitor looking for entry points. To trade using this method, you need to be well versed in the market and be able to quickly navigate and adapt to rapid changes.
Trading in the medium-term implies holding trades either for a few hours or for a couple of days. Rarely is a trade held open for a week or longer. To trade using medium-term strategies, a trader should carefully examine the economic situation, monitor charts, and, if necessary, make adjustments. Such trading strategies require less “presence” than scalping, but even more meticulous knowledge of the overall market situation.
With long-term strategies, a position remains open from several weeks to several months. Such strategies are suitable for those traders who have a substantial amount of capital in their account, and who can afford to wait weeks until they receive their profit.
After you picked the trading period, you need to decide which type of market analysis you’ll be using – technical or fundamental. Your trading approach will depend directly on it. You can first master one method, and then move on to the second. This will allow you to look at the market situation from different angles.
If the fundamental analysis is your thing, dive deeper into the news trading strategies. If you prefer technical analysis and charts, focus on topics on studying trends, reversal patterns and other technical indicators.
Once you choose the timeframe and the method of market analysis, you can proceed to the strategy itself. First, stay away from high-risk strategies. Yes, they can generate higher returns faster, but they also pose a greater risk and can drain your account as fast. So, the piece of advice here – stick to conservative strategies.
Try not to overload your charts with indicators, make sure that there are fewer lines and symbols on the chart. The simpler the better. This way you won’t be distracted by different indicators – their signals often contradict each other, which can be very confusing.
There is no perfect trading strategy. It is important to understand that. Every trader chooses a trading system, that fits him best depending on his trading skills, knowledge, personality and temperament. Only a trader himself knows how patient and risk-tolerant he is, how much capital he wants to invest, and how much time he can dedicate to trading.