The main types of Forex strategies
A strategy is long-term planning for the future, a phased orderly course of actions and thoughts of the trader, united by a common understanding of the processes occurring in the market at a given time. To effectively and successfully carry out financial transactions, inexperienced traders must learn at least the basic Forex strategies. Classic strategies are golden rules and recommendations that over the years have led brokers to succeed.
The separation of the entire diversity of strategies occurs according to certain criteria, one of which is the time factor. This feature implies the division of strategies into the following types:
- – Long-term (the trading process takes a long time – weeks and months).
- – Medium-term (the time for trading includes several days or weeks).
- – Short-term (the trading period is determined by hours or days).
- – Scalping (within 2 hours). An important point in this strategy is the observance of the principles of money management inside the trading account, the so-called «money management»: this helps to avoid losses or minimize losses.
- – Pips strategy (from 1 to 5 minutes). A trader can make an unlimited number of transactions.
Another essential feature is the basic principle of the functioning of a particular strategy, depending on which they distinguish:
- – Simple strategies.
- – Indicator (imply the presence of several different indicators).
- – Indicator-free (the price acts as a replacement for the indicator).
- – Breakdown – are considered to be classic. The basis of their work is the signals that appear after the breakdown of the resistance or support line, as well as after the breakdown of the boundaries of the price channel (minimum or maximum value). Thus, these strategies perceive a breakdown of a significant price level as a signal for active trading.
- – Martingale trade strategies. Applying the well-known martingale principle in mathematics is often a winning strategy, but requires the trader to have a significant deposit amount.
Also, other strategies can be distinguished, depending on the tools that are used in them:
- – Graphic. The basis of such a strategy is the use of graphical analysis, the construction of various levels and lines.
- – Analytical The basis for decision-making here is an in-depth analysis of prices and the foreign exchange market as a whole. With such a strategy, it is possible to evaluate both the current state of the market and give forecasts for the future.
- – Mechanical. Such strategies allow you to automate the workflow. However, on the other hand, such a strategy is often alien to flexibility – the system gives response only to technical indicators.
- – Hedging. The basis of this system is risk insurance. The main condition is that the trader has a deposit, the value of which will significantly exceed the amount of one position.
According to experts, at least two strategies should be applied simultaneously for productive trading in the market. The nature of the Forex in the Republic of Belarus is such that sometimes the most effective trading strategies do not provide signals that it is necessary to begin active trading at times when it is worth doing. The basic rule here is the following: any strategy should be used as intended. For example, it is a well-known fact that working with charts of European currencies requires the observance of some conditions, and charts of Asian currencies – others. Before using a trading strategy and pin hopes on it, you must first study all the available information. Only after theoretical preparation should start testing in practice.
Also, you should always remember: Forex market strategies are only reasonable recommendations, instructions for action, developed based on practical experience, which only together with your skills and, of course, a certain share of luck, will lead you to the desired result.