Picking a forex strategy is one of the more daunting decisions every trader has to make. It’s also one of the most important decisions since it will affect the way to trade as well as your potential to make a profit.
In other words, your strategy will be directly connected to your ability to make money.
Naturally, this decision is hardest for beginners, which is why we decided to make this post more beginner-oriented with three easy-to-understand tips. Despite that, many of the following tips can also be applied by seasoned forex traders that are already trading.
In addition to picking a strategy, every trader needs a reliable forex broker to use. You can find one here: https://bullmarketz.com/best-forex-broker-for-beginners-uk/ Choosing one that has already been tested and reviewed by professionals is the most efficient way to ensure that you’re picking a broker you can trust.
Step 1: How Are You Going to Trade?
Deciding on how you’re going to trade is the one decision that will have the biggest impact on which forex strategies you can use. Generally speaking, there are four ways that you can trade forex.
Scalping is a type of trading with the shortest time frames with the goal of profiting from the smallest market changes. In many ways, this is the most difficult way to trade forex since it requires incredible analytic capabilities and an impeccable exit strategy for each trade.
Most professional forex traders are day traders. This strategy involves opening and closing positions within the same day, often not keeping a position open for more than a few hours. This method can only be used by traders that are actively trading every day.
When swing trading, you will be keeping your positions open for days or even weeks at the time. It’s a good strategy for people that can’t trade actively throughout the day and that prefer analyzing with weekly price charts. With that said, swing trading is better suited for stocks or commodities than forex.
If your goal isn’t to become a professional trader and you’re planning to only trade once in a while, you don’t have to be as strict with your strategy. Instead, your goal should be to enjoy trading more like a pastime.
Step 2: Risk or Reward?
With an idea of how you’re looking to trade, you can zero in on more specific strategies by deciding if you want the strategy to offer higher risk and higher reward or lower risk and lower reward.
Picking a low risk, low reward strategy is recommended for beginners while more experienced traders often opt for the high risk, high reward strategies.
However, this isn’t black on white and you want to find or develop a strategy that has a more even risk to reward ratio where you can make the most profit with the lowest risk.
By now, you should also pick the instruments you want to be focusing on. There are way too many currencies in the world for anyone to trade all of them so you need to pick a group of currencies that you will focus all your efforts on. We suggest that you start with a handful of pairs and then add to those the better you get.
Step 3: Combine Strategies
Lastly, you have to understand that no serious trader only uses a single strategy to trade forex. Instead, they combine different techniques and methods that can be applied to different scenarios. Many professionals also switch between swing and day trading to increase the number of opportunities they can benefit from.
Naturally, this is something that takes a lot of time and, as a beginner, you should start small. Learning how to trade forex or any other instrument is time-consuming, so be prepared to put in the time and work.
As mentioned earlier, the quickest way to learn how to trade is to rely on the tips from more experienced traders. There are countless books, videos, and websites where traders share all their best tips and strategies and that is where you should get started.
All top brokers also allow you to open a risk-free demo account where you can trade under real market conditions using virtual money. These free accounts are, by far, the most efficient way for beginners to develop and master basic forex trading strategies.