How to choose the right strategy to trade the Forex market?
Most aspiring traders find it daunting to find forex strategies that actually work from all the many around the web. The truth is, while strategies are an essential ingredient to a successful trading career, forex demands more than that.
Being a successful trader means that you have to practice discipline, strict money management, be willing to learn and quick to adapt and above all, have a passion for trading.
Figures show that the average new trader gives up in less than 4 months. So, to be the guy who tells the story of 5 or even 10 years in the game, acknowledge that strategies are only a small component.
There are two types of analysis used to determine the various strategies used in Forex.
1: Fundamental analysis
Fundamental analysis focuses on analyzing market news and economic activities in the world to determine how they affect the future price behavior of currencies.
For example, in a news release of increased interest rates in Japan, a fundamental analyst will interpret how that information affects the JPY then know whether to buy or sell the currency.
2: Technical analysis
Contrary to a fundamentalist, a technical analyst determines future price movement from past behavior. Technical analysts believe that the market always repeats its cycles, hence if they can identify those patterns, they’re able to predict the future of the currency.
There’s a lot of debate that technical analysis works better than fundamental and vice versa. But I’m inclined to say I view them as two sides of the same coin.
A trader who implements both is at a greater advantage than another who trades one of either.
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There are several variations of strategies used in trading. From pure price action to algorithmic and even HFTs (High-Frequency Trading), all these aim to profit from the market.
But, the main strategies/ styles used include:
1: Daily/weekly trend following
Some of the most profitable forex traders swear by using the daily and weekly charts for their analysis.
Daily traders (End of day) hold their positions for a few days to a couple of weeks while weekly chartists can hold from a few weeks to even long term months.
These traders review the charts by their timeframe and focus on following the trend.
2: Day trading.
Day traders open their positions and close at the end of the day to avoid the rollover fees as the markets change. Day traders use the hourly charts for their analysis and aim for about 50-100 pips a day.
Scalping isn’t really a strategy but it’s used by especially newbie traders.
Scalping aims for a few pips of 15 or even 5 since the trades stay for a few minutes before closing.
Robo Advisors are automated computer systems which use complex algorithms to offer financial guidance and advice while requiring minimum human intervention.
These robo advisors are currently available mostly for US citizens with a few others in Uk for European residents. Forex robo advisors may offer you advice on various services such as wealth and portfolio management.
Due to their robotic nature, they’re always accessible hence you can get answers 24/7. Also, they require less capital of $2,000 to invest with compared to human advisors who state figures as high as $50,000 as a minimum.
Most robo advisors available are from the top US investment companies such as Schwab and Vanguard.
Before accessing robo advisory services, always check to know you’re consulting the right one as they offer different services. Most robots offer their services to ETFs and mutual funds since they’re more diversified hence reduce risk while also offering a wide array of choices to select from.