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Trading Strategies

Trading Strategies

21.11.2020

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Trading strategies and tactics of the stock and foreign exchange market – this is the optimal set of rules that allow you to reasonably make transactions on exchanges. In addition, a well-developed trading strategy allows you to minimize losses and accurately calculate the possible profit from trading on the Forex market and on stock exchanges.

All trading systems are subdivided into long-term, medium-term, short-term (intraday, swing trading), super-short-term (scalping, piping). Basically, the choice of Forex strategy depends on the nature of the trader, his trading style, trading instrument, and timeframe, which the speculator is guided by.

Trading strategies

Trading strategy means a set of rules according to which work is carried out on the market… This set of rules describes the conditions under which transactions are concluded, and also includes rules for managing money, placing orders stop loss and take profit, etc.

Depending on what trading instruments are used in the work of a trader, the following types can be conditionally distinguished:

  • Indicator trading strategies – the main role is given to indicators. There is a risk that the strategy will cease to be profitable due to the fact that the indicator settings are no longer relevant. Optimization is possible, but doing it manually is not so easy.
  • Chart Based Analysis – These trading strategies are based on charts and Price Action patterns… This category of a trading system does not become obsolete over time.
  • Based on Japanese candles- are also not obsolete.
  • Based on wave analysis – a rare type of trading strategy, usually wave analysis is used in order to get a general idea of ​​the market situation, but not to find the points of the conclusion of transactions.
  • News trading strategies – most often trading is carried out in an attempt to catch the price movement after the news release. That is, the trader is trying to catch the impulse price movement.

When choosing, keep in mind that even the best trading strategies can turn out to be unprofitable if the trader does not follow its rules 100%. It is advisable to take into account your own preferences, and not be guided by the result of the test of the trading strategy and feedback from other traders. It is advisable for beginners to pay attention to trading strategies with a working time interval H1-H4 at the beginning of their work on the market.

What are strategies and what are they for

For beginners, in order to start trading on Forex without risk and loss, you must first learn the basic concepts and terms of trading. Then it is recommended to work out ready-made stock trading strategies offered by experienced traders with many years of experience in this area of ​​earnings.

A trading strategy is a system of rules that require constant implementation. In order to make a profit, you cannot retreat from them. This is a kind of plan for concluding deals and trading on the Forex market. A well-tested trading strategy allows a trader to enter the market at a set point without any hesitation and exit it in a timely manner while making a profit. No one is insured against losses in the foreign exchange market. But if you work correctly according to the strategy, there will be much more profitable trades.

What determines the choice of a trading strategy

Many simple trading strategies have been developed today. Therefore, it is important for each new bidder to choose the most optimal plan, to improve it over time for themselves. Profit in this business largely depends on the correct choice of the moment of the transaction and the period of holding the position.

Having concluded a contract, each trader independently decides for how long he opens a deal, i.e. determines the time and date of closing the contract. Therefore, according to the duration of holding a position, trading strategies are divided into 3 categories: short, medium, and long-term.

Short term

The short-term method is more intended for experienced traders. It includes:

  1. This is intraday trading where a trade opens and closes in one day. Forex day trading strategies are simple and straightforward enough. They are suitable for most market participants. During the day, a trader can manage to make several transactions at once using different instruments. This type of exchange trading allows traders to open up to 5 transactions per day.
  1. Scalping… This option is convenient if you have a small amount of money on your account. Contracts are concluded for a minimum period – from a few seconds to half an hour. In this case, an experienced scalper can carry out up to 200 transactions per day, but not all of them are profitable. This is a rather complex trading method that is used regardless of the main direction of the market movement.

Short-term trading strategies are the most aggressive because provide for the conclusion of many contracts – an average of 100 transactions during 1 trading day.

Medium-term

In medium-term trading, positions are held for at least 1 trading day, and the maximum period can be up to 2 weeks. At the same time, in order not to lose your own investments, it is recommended to work with leverage of no more than 1: 3. Before entering the market, a trader conducts technical and fundamental analyzes.

Long term

A simple Forex strategy for long-term trading is suitable for both novice traders and fairly experienced market participants. In this case, contracts are concluded for several months.

Long-term trading provides an opportunity to watch the movement of the price chart more calmly, less worry about the result of the transaction. A trader does not need to constantly sit at the computer, 15-20 minutes a day is enough to control the market situation.

Correct forecasting when using long-term trading strategies allows investors to get big profits. One long-term trade can bring several thousand points.

2 types of analysis of trading strategies

To correctly predict the movement of the market, you need to be able to analyze it. For this, trading provides 2 types of analysis: fundamental, technical. Some people think that mastering one of them is enough for profitable trading, but this is a misconception.

In practice, money on the currency exchange is most often lost by those participants who do not know the basics of any of these types of analysis. And those who effectively use both fundamental and technical analysis in their work make a big profit.

Fundamental analysis

This type of Forex market analysis helps to predict changes in the price of a financial instrument based on economic news around the world. Important news often heralds a reversal of the price chart – trend. Therefore, a trader who has entered into a deal without preliminary fundamental analysis will not be ready for unexpected changes in the stock market.

It is not recommended to enter the market on the eve of important events. In such situations, price movement is unpredictable and can change dramatically in one direction or the other. Sharp movements of the price chart in most cases close contracts by stop losses and with large slippage. This violates the rules of the chosen super strategy. Professional trading participants recommend to close positions and stop trading before the release of significant news until the market calms down.

Market participants often use fundamental analysis in medium- and long-term trading.

Technical analysis

Analyzing the situation in the foreign exchange market using a price chart is a technical way. Forecasting the direction of the chart movement is based on the historical information of the rate of the financial instrument selected for trading.

How to choose your trading system

Every young trader should first of all understand that the best and most profitable trading strategy is the one that suits him best. It may take more than one month to create your own secret copyright exchange trading plan, for some, it may take up to several years.

Experienced Forex market participants recommend that beginners take the simplest ready-made strategies as a basis, try to trade with their help, then add something of their own, i.e. adjust to individual characteristics. Only in this case, it is possible to achieve success in trading, while in a shorter time frame.

To choose the optimal trading plan for the foreign exchange market, beginners are advised to first analyze their characteristics: psychological type, free time to study the market and work on it, professional level of a trader.

Conclusion

Today there are many strategies for trading in the financial markets that allow you to generate income. To do this, use ready-made, proven tools, or create your own. But in both cases, the trading plan must correspond to the needs and psychotype of the trader.

Experienced market participants advise foreign exchange beginners to use exchange trading strategies developed by professional traders with many years of experience on exchanges. In addition, technical signals are used to track the contracts of professionals, as well as their reactions to various market situations. Over time, such educational moments will help you gain experience and independently engage in trading.

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