Tag: FX Strategy

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Forex Basic Strategies

Are You Switching Up Your Forex Trading Strategies?

Having multiple strategies can be a result of one failing in a certain market environment. Traders then try to fill up holes the original strategy had with another strategy adapted to new market conditions. According to some experts, having additional strategies is always beneficial, having more weapons in your arsenal is good. Another common argument […]

Having multiple strategies can be a result of one failing in a certain market environment. Traders then try to fill up holes the original strategy had with another strategy adapted to new market conditions. According to some experts, having additional strategies is always beneficial, having more weapons in your arsenal is good. Another common argument […]

Having multiple strategies can be a result of one failing in a certain market environment. Traders then try to fill up holes the original strategy had with another strategy adapted to new market conditions. According to some experts, having additional strategies is always beneficial, having more weapons in your arsenal is good.

Another common argument is that markets always change in many ways, one strategy will sooner or later start to fail. The global economy itself is cyclic, not to count all the other things mixed in. However, what if we instead of changing strategies just move into the market where the conditions are right, suitable for the original strategy? Basically, it is the same thing – adapting to changes. This concept then sets another question, how to recognize the market is not suitable for our strategy, when is the moment we need to switch strategies, to find other markets, currency pair, or assets?

There is no simple answer to this question since every strategy is different to some extent, and there are more strategies than traders. Developing a strategy that works only in specific conditions is a specialized strategy, their drawback is not only a tight schedule but also a limitation to a few of the markets available for trading. If you are familiar with automated trading scripts, you will see they are mostly designed for one or a few other currency pairs. This is because they are tested back and forth only on a limited historical/future period and only adapted to that currency pair specifics. At the moment of their public release, these strategies or scripts will run well probably. If they are not updated their performance will drop. 

We see a lot of content on the internet about having more strategies, adapting, experimenting with indicators, rules, and settings. Building your system should never stop. However, most of the traders fail not because they are not good at the technical or fundamental analysis, but money management and psychology. It is common to see traders overoptimize their systems to new conditions. Then change them again once they do not work as intended. If they are very thorough with their testing, as they should be, the operational time of their strategies is low compared to the optimization time. After all, some traders may question is it worth it to maintain and develop multiple strategies for new conditions perpetually?

Notice we have added trader’s mindset and money management into the mix that makes a strategy. According to some popular trading education resources, it is advised to be flexible. Being flexible also means not only using tools and indicators to decide but also your experience, your skill analyzing the price action. Additionally, absorb a hit or two trading with an inadequate strategy with sound money management. In other words, you have to trade and know how to trade in so many ways. Well, in our book this is just going to mess everything up. No trader is universal, traders will shape their trading ways as they see fit, and could be successful in many ways.

Technical traders will like indicator systems and have crisp money management based on them. They will have the edge as they do not have to deal with doubt, hesitation, overtrading, and other common mistakes. Price action traders with a minimalistic approach recognize historical patterns from experience and base their decisions on that. Fundamental traders take a long-term approach and people adept with coding could even indulge in making trading robots. Switching strategies and how a trader approaches trading is contradictory to their personalities and their trading cannon. 

Optionally, traders could develop a universal system. This strategy may work only in specific conditions, limiting their performance, however, there is no limitation to other markets. For example, trend following strategies would need trends, volume, but they fail in ranging conditions. Now traders know what to avoid. If a ranging market or consolidation is imminent, stop all trades and find other currency pairs or assets. Specialized strategies cannot switch to other pairs without additional tweaks. Whatsmore, their effectiveness may be short-lived if the intended pair starts different price action. Traders will now have to consider whether developing such strategies is better for them than universal strategies. 

Trying new things always carries more knowledge traders use to combine amazing indicators, strategies, and trading styles. Consider if your failures lie in your strategies or if your money management and psychology are out of place. According to many professionals, traders struggle with the latter. Be sure that if you have many strategies it is not a product of bad money management or many trading psychological issues one could have. There is no better strategy you can make without the two most important pillars. 

Some proprietary company traders even go far enough to say good money management and a random decision strategy beats the best strategies without good risk or money management. Considering this, maybe a better headline question would be “Are you changing your mind often while trading your strategies?”

There are certain times you may be put under pressure to trade, for whatever reasons, hopefully not out of desperation. It is quite normal to switch timeframes and rules. For example, trend following strategies does not have great odds when the whole forex is not active. Professional traders create a rule for these periods, money management rules. They lower their positions and if forex is almost dead, they do not trade at all. Now, switching to other strategies that work in quiet environments are likely to be reversal strategies. Sometimes they might not be adaptable to a trader’s lifestyle, especially if they require more screening time. Curious and “out of the box” thinkers could go into other possibilities and find a good automated trading solution that works great in these conditions. Forex has a place for everyone and everything, but only rewards those persistent to find the solution. 

A trader who has universal strategies that work with little adaptation to different markets like forex, precious metals, indexes, and crypto, using the same good risk management principles is a complete trader. Getting to this point is the hard work of testing, frustration, losing, and trying again. Mastering one strategy takes a long time, probably a few years. Sometimes it is normal to give up on that one if you do not have results, provided everything else is good. Those years are not wasted. More often than not, traders that have moved into other trading styles use some elements from previous work, sometimes even coming back to their old strategies that needed just a bit of knowledge and experience from another perspective. It is eureka for most of these traders, however, know such people are rare, and only they come to the top. 

As a final piece of advice, search out for other strategy resources, and experienced people. You will find out each may bring up some ideas or tools that you could use in your current system. Strategies that are not into your style of trading are also useful as they may hide some rules or money management principles you could carry over. Creative traders will enjoy this process of discovery and implementation but never forget that playing with tools is fun, money management and psychology concepts are not, yet all professional traders spent a lot of time developing them. For more info about adaptable universal strategies, risk management, and psychology, check out our previous articles.

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Beginners Forex Education Forex Basic Strategies

Five Fundamentals of a Good Trading Strategy

One of the most important things that a trader needs in order to be successful is a good trading strategy. This is one of the first things you need to figure out as a forex trader because it is crucial to have a plan outlined so that you know how you want to trade and […]

One of the most important things that a trader needs in order to be successful is a good trading strategy. This is one of the first things you need to figure out as a forex trader because it is crucial to have a plan outlined so that you know how you want to trade and […]

One of the most important things that a trader needs in order to be successful is a good trading strategy. This is one of the first things you need to figure out as a forex trader because it is crucial to have a plan outlined so that you know how you want to trade and what your goals are. There are a lot of different strategies out there, some focus on day trading, while others pay more attention to risk-management, making smaller profits that add up, and so on. No matter which strategy you choose, there are 5 important elements that your chosen strategy needs to incorporate. 

Time Management

You need to invest some time into trading if you want to be successful. This doesn’t mean that you have to quit your job and devote all your time to trading, but you do need to make sure that you have enough extra time to take trading up. Once you’ve figured out how much time you have to trade, you’ll want to find a strategy that you can maintain. If a strategy requires multiple hours a day sitting in front of your computer but you can only trade in shorter intervals, then it won’t work for you. 

Risk-Management

You’ll need to decide how much you’re willing to risk on each trade before choosing a strategy. The truth is that most experts don’t recommend risking more than 1% of your account balance on any one trade. This can account for slower profits but will ensure that it does not break you if you make a bad move. Trust us, we’ve heard stories about big-league traders losing $25,000 or more on one trade thanks to a lack of these precautions. On the other hand, some traders prefer taking more risks with the chance of making a bigger profit. We’d recommend sticking with the expert’s recommendation if you’re a beginner or don’t have a lot of money invested just yet. Of course, what you’re willing to risk is up to you and you need a strategy that follows those guidelines. 

Making Money

Your trading strategy obviously needs to be profitable with the goal of making money (while minimizing your risk). Of course, your strategy needs to outline some type of plan to bring in the money. What does the strategy consider? Is it based on trends, making small profits through multiple trades, or something else? You should believe in the things that your strategy is based on. 

Easy to Follow

This doesn’t mean that your strategy needs to be simple, only that it needs to be easy to follow from your own perspective. If a strategy confuses you, then you’re going to have a hard time following it correctly. If you try your best to understand a more complex strategy but can’t figure out all the little details, you should try moving on to something else. Remember that a complicated strategy is not necessarily better than a simple one. 

Works with your Broker

Some strategies won’t work with your chosen broker or trading platform. For example, some brokers or platforms do not allow scalping, which means that scalpers can’t use their strategy on those platforms. If you already have a broker, you should check out their terms and conditions so that you know what is and isn’t allowed before choosing a strategy. 

 

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Beginners Forex Education Forex Basic Strategies

Forex Trading Strategies To Avoid: Martingale

There are a lot of strategies out there, some are fantastic and some not so much, there are also some that you should be avoiding like it was the plague, these are strategies that are either extremely unrealistic or will increase the risk within your account to an unacceptable level. Some also have literally no risk management and just rely on luck or hope that the markets will change.

There are a lot of strategies out there, some are fantastic and some not so much, there are also some that you should be avoiding like it was the plague, these are strategies that are either extremely unrealistic or will increase the risk within your account to an unacceptable level. Some also have literally no risk management and just rely on luck or hope that the markets will change.

There are a lot of strategies out there, some are fantastic and some not so much, there are also some that you should be avoiding like it was the plague, these are strategies that are either extremely unrealistic or will increase the risk within your account to an unacceptable level. Some also have literally no risk management and just rely on luck or hope that the markets will change.

One of those such strategies is the Martingale strategy, this strategy was first seen in the 18th century and was most popular in France. This strategy was used a lot in the casinos, there were those that made a lot of money from it, but far more lost everything. The casinos also came up with their own defenses and changed the way some tables world primarily to simply prevent people from using this strategy.

So if the casinos are changing things to prevent it, it must be quite effective right? Well, it can be, it can actually guarantee you wins, the problem is that you will need an unlimited amount of money in order to guarantee a win.

What is the Martingale strategy?

The idea behind the Martingale strategy is very easy to understand, you place a bet at $1 on a 50/50 outcome, if it wins, then you get back $2, If the first bet losses then you will double up your bet, so the next bet would be $2, if that wins, you get $4 back which is $1 profit ($1+$2 bet $4 win). If it loses again, then you double it again and place a $4 bet, you are starting to see the pattern now.

Those that advocate the strategy will tell you that if you have enough money, you will always have a winning bet, this is technically true, the laws of probabilities indicates that you will eventually have a win, the problem is, that you would potentially need millions in order to win that $1 if too many trades go the wrong way. The amount that you need to pay can very quickly get out of control.

So looking at that table, you can see that the amount that you are betting and the potential losses can very quickly go through the roof and they will continue to escalate at a much faster pace the more you go. Many people will be expecting to make a win before getting to that stage, but are you really willing to potentially risk $1000 just to get a $1 profit, it really isn’t worth it, this strategy is only achievable if you have an unlimited amount of money.

Many people have tried to use this strategy, unfortunately, the majority of them have lost all of their money. When you look at it from the outside, you would assume that you would win at least one of your trades out of 10, but the markets do not work through those sorts of probabilities, the majority of people using this style do not necessarily use a well thought out strategy, instead, they trade and hope, hope that one of their 10 trades wins, but unfortunately, a lot of people often realise that it is not quite as easy as that, and so ultimately lose.

There is also an anti martingale strategy, this works in much the same way, except that you would not be increasing the bet size after each win instead of a loss. People believe that they should take advantage of their winning streaks, each win will multiply the current profits, you then reset down to the minimum trade until the next win when you then double up again. This method will help to reduce the potential losses, however a run of losses will still then require you to win a number of different bets or trades in order to make up the differences, so it is still considered as quite a risky strategy, but nowhere near as risky as the original Martingale strategy.

So that is the MArtingale strategy, something that has probably been taught to you, and something that you will find a lot of expert advisors using, it is certainly something that you should avoid due to its nature and the risks involved.

Categories
Forex Basic Strategies

Buy and Hold FX Trading Strategies

In this article, we will discuss and explore options you have once you are already trading on Forex. It is also for beginner traders so they can understand all the benefits of becoming a consistent, successful trader. At one point, as an established professional Forex trader, you would need to consider options with the capital […]

In this article, we will discuss and explore options you have once you are already trading on Forex. It is also for beginner traders so they can understand all the benefits of becoming a consistent, successful trader. At one point, as an established professional Forex trader, you would need to consider options with the capital […]

In this article, we will discuss and explore options you have once you are already trading on Forex. It is also for beginner traders so they can understand all the benefits of becoming a consistent, successful trader. At one point, as an established professional Forex trader, you would need to consider options with the capital you can extract from Forex. The skills traders gain in their career are universal. They do not apply only to Forex. It is not only the mindset, but it is also the system(s) they have built. This way they can use the money from one business and use to invest in another. The money will be multiplied many times over throughout their life. Of course, some people may not be interested in this, and they are probably not reading this as motivated future traders. However, this group will most likely have only one way of winning, while Forex traders have many ways to win.

Buy and Hold strategies are not very well presented and the people that talk about them do not give you anything substantial traders can use. There are a couple of them and in this article, we will discuss some applicable to Forex traders. Also, why to Buy and Hold Strategies are important, the number of people who have one is so small compared to the ones who do not. Forex traders have a huge advantage to those who are investing long term. This advantage will be discussed later. Note this is just an opinion and observation by certain professional prop traders.

People come to Forex for the most attractive reason, to gain a lot of money in the short term. This is possible although very unlikely. Forex is therefore interesting to those who do not have much to invest. However, the sooner you have, the better. It is imperative to start using the Buy and Hold strategy at the beginning of your life or as soon as you can. Regret you did not will come after many years. The long game or long term investing is not popular. The rewards are late. Sometimes too far for us to consider it as a solution to our present problems. We give present problems priority even if we have a solution for our future problems in the present. Part of this mindset is the same reason why many fail to trade on Forex. It is finding a quick fix for their financial and career problems, they want to quit their captivating job and break free.

This might be a good idea if your life expectancy is short, although for most it Is not. Having an early start will be very soothing for the future you, the longer you delay, the Buy and Hold strategy will have a diminishing effect. Once the strategy is started, it keeps snowballing and you will start to make good decisions that are lifechanging. Feeling secure in your future will relieve you of stress and you will feel the security few people do. So, from another view, you already have something right away, peace of mind. Another reason Buy and Hold investment may be unappealing in the fact many people are tied to the money they made by working hard, the idea they need to start investing stirs fear, they are hanging to the money they have. This is not a wise decision.

The book “The Richest Man In Babylon” by George S. Clason is a classic but the most interesting part is when a poor man comes to the rich and asks him how to become rich. The answer is first you need to earn 10 coins a month, then, put one away. Make this a rule you will not break. The poor guy protested, stating he will not have anything left at the end of the month, he needs every penny. This is not an option, however, to become rich you will need to make this step. After a while, the poor man came back and said there is no difference except now he has some savings, and that he never felt better.

Even if you are a good, profitable trader, earning money in one way is the same as saying you are putting all eggs in one basket. Not wise, you should play the offense and defense at the same time. The defense analogy part is known as Passive Income. The best teams play both sides, why not you. While you are making nice gains off Forex, do not spend the whole batch, set one part aside, and create your evergrowing capital. This move will take trading anxiety away because even when your trading comes to a halt, you will have the Passive side still working behind the scene. Imagine that terrible month where all of your previous year gains are negated, it feels like a year is wasted. But if you have that other Passive side, it will not feel that bad.

The Mystery of Buy and Hold Strategies

Buy and Hold strategies are not explained and not present on the internet, because the internet places the most popular first, not the most beneficial to you. So how we can use our forex trading skills to become better than most of the population who is doing this? Some common sense takeaways are often overlooked with this strategy and we, as forex traders will know what to do better. There is a lot of ways you cad do a Buy and Hold strategy. They are not all great but let us start with the Buy and Hold Forever idea. This one is not too bad to follow, there are a good argument and logic behind this strategy. When you look at the stocks or Indexes history, they just rise up and up, even when they crash a bit they end up recovering and rising again. The history will repeat, cycles will do their thing until the repetition does not hold and something new occurs.

That equities rally may just stop rising, you simply do not know. All you have are the odds. The odds imply that it does not matter when you enter the market with the Buy and Hold forever strategy as long you keep that forever mentality. This means if you invest in Gold and it starts to decline in price, you do not blink, do not bailout. On the contrary, this is an opportunity to buy more, you are playing the long haul. The plan is set here to hold the asset for a very very long time as the price moves up and up. Withdrawal is not set in the plan and it is not uncommon people never withdraw. They might come to the point of old age where all that money is not very useful to them and pass it on to their kids. There are many iterations of this approach and there is nothing wrong with it.

The Buy and Hold until you cash out big is the one with many weak spots, and here is why. The plan is to collect all the investments and put everything into the pocket. This form of Buy and Hold is very common, especially with the people who are into investments. They may have an idea to wait until the price is very high (high relative to what?) and cash it out, then use the money for something else or just count the bills. This plan is not a good one. Until you have a precise number when this investment ends, it is not a good plan. Now, for example, if we take an excited blackjack player who comes with just $100 and lifts his game to $40.000, he will just keep playing. He will play $40,000 for more until he is back to $100 all in one day. These people did not have a plan.

The same people who bought Bitcoin when it was just $1000, hyping when it reached almost $20,000. Then the talk about the BTC made millionaires circles, but the truth is only about 40 out of hundreds of thousands of people got out at the right time. The majority let the hype run and when it is over some may even go with the Buy and Hold Forever strategy. Od course, they would for sure sell near the $20,000 mark and buy it back when it went down if this option is available. After all, just be sure to avoid this strategy.

Forex would like the approach with a structure, even in the Buy and Hold strategy. This is a type where investors Buy and Hold and cash out along the way. Where are the points in time and level where you cash out, is subjective. It depends on the investor’s tolerance, how long to hold, and what is the asset held. Forex traders will have a plan and structure for this. Again, having a passive income element is very important as your trading will not be as great as before.

Long-Term Swing Trading

Long-term Swing trading types may not really be in the category of the Buy and Hold idea, but it is also very interesting for forex traders who have a plan and a system. More on this strategy later. Just to point out what makes forex traders better right off the bat is their Money Management structure. Without Money Management, there is no money. If you are strictly following the Buy and Hold Forever strategy then you probably do not need to worry about Money Management.

However, people who follow this strategy fail with their psychology trading element. When you think of it, all they have to do is invest and do nothing. The do-nothing part is a very hard thing to do it seems. Warren Buffet can do it but most cannot. When the markets stir up with volatility, their fears kick in as their asset is going down. Then they get out at the wrong time. Trading by fee is the worst possible way to trade, and it is often what beginner traders do, not just forex traders. So it can be said that all decision making is just better when the emotions are not in the way. Forex traders beat this with their systems. Unfortunately, others do not have the system. The rules for forex trading is easy. Trade according to your system, then go away, and repeat.

Taking the above into consideration, we can create some common-sense rules you can follow. Just by using these general pointers and then create your strategies over time, you will probably do very well with the Buy and Hold investing. Have a plan. Most do not have one, which gives you an advantage right away. Execute the plan. Write it down and follow it like it is holy. Writing it down will also write it in your mind. This will make a psychological effect that helps to obey the plan. A forex trader can also use their trading platforms to set Take Profit levels, etc.

You may be caught in a mania, an emotional excitement when your asset shoots up. There will be an urge to move that TP level higher or cancel it altogether just to see where is the limit of this fortune. If your plan set the TP, then messing around with it is not an option, no exceptions. There are no regrets, as another opportunity always shows up. Regret is another emotion that may cause bad decisions so enjoy your cool just by following the plan no matter what. At the begging, you will have these urges, but in time it will vanish.

Buy and Hold Cash Out

Now let us go back to that Buy and Hold and cash out along the way strategy where you can apply the plan. Forex traders already have their Money Management plan so they can set a Stop Loss if it is not a Buy and Hold Forever type. How deep the SL level will be is on the trader to determine, but have one in place. Have a Take Profit level too at some nice gain point, at least one, and then move your SL to breakeven when TP gets hit. This is all basic common sense and an example you should already know if you are a forex trader. In the Buy and Hold strategies, it is also applicable.

Since in this type you cash out along the way, you can put multiple TP levels and leave that little bit in the asset. That little bit can be saved for your potential “flyer” rally breaking the sky limits with the trailing stop so you do not miss those life-changing investments. It may not be amazing that just a part of your initial investment captured that rally but you can rest easy, you have a system that is making it all happen again. This basic plan will get you in the top 95-99% of investors, and it can even get better.

So we know we have great odds in our favor by having a plan, but nowadays we also have the ability to go short, not just long. We can do it on gold, commodities, ETFs, and many more assets. This almost double our odds, there is no need now to sit out the drops. Surprisingly, many people do not use this ability and there is no reason why forex traders should too. Further improvement of the forex trader odds is by selecting the assets that almost have no chance of dropping to zero or going so low they do not have a chance of recovery. These assets are stocks, some companies do not have chances of recovery, for example like Sears. Gold is an asset that will probably not going to drop to zero, Energy ETF baskets too. The final and great advantage forex traders have is their technical analysis system. With the well made and tested system forex traders have better odds than investors and even financial advisors.

Now you need to decide do you want to Sell and Hold or Buy. There are many inverted ETFs that will allow you to short indexes. So are we in the seller’s market or the buyer’s market now? If you think we are in the cyclic bubble right now then you may go in the selling direction but know that you might be wrong. This means you should not go all-in on the short side. Also, the algorithm will tell when is the right time to make a trade. The timeframe used for trading is not optimal for long term investment so increasing to monthly is recommended.

For that Long term Swing trading strategy, the weekly timeframe is the most optimal. Swing trading on this timeframe is not really considered Buy and Hold but it is for those who want to participate in the price action. If you have the system that works universally on every timeframe, then why not use it to squeeze more. Whatsmore, trading on a weekly will relieve you of the trouble if the market is in the sellers or buyers zone.