How To Choose Between Different Forex Strategies
The forex market is an extremely confusing one, and for the new trader it seems an impossible arena to navigate. While one is prepared for the tedious task of finding a forex broker, traders are not always ready to search for a forex strategy. Popular belief has caused many to assume there are only a few strategies to choose from, but in reality there are hundreds and choosing the correct one requires understanding of who you are as an individual. Your personality influences your trading type and strategy greatly, once you have identified your temperament you are ready to look at the different strategies available.
What trading type do you suit?
When entering the forex trading market it is important to identify what kind of trader you are. Your trading type is closely linked to your personality. If you feel slightly befuddled on how to determine your personality/trading type relationship, here are some questions you can ask yourself to figure this out.
1. Do you enjoy instant gratification?
If you are an impatient individual and do not enjoy having to wait for results, a fast trading strategy would best suit you. There are several forex strategies which have transactions with short trading periods. However, these strategies can be disadvantageous for the beginner as they require quick judgements and a strong understanding of the forex market.
2. Do you enjoy seeing things progress over time?
If you are an individual who is willing to watch a trade mature, then a long-term trade will be suited to your needs. Many traders opt for this trading strategy as it is the safer option and allows for a more stable transaction.
3. Are you a fence-sitter?
If you are an individual who enjoys both impulsive behaviours and taking your time, perhaps you should look into one of the forex strategies which can be used in both long and short-term trades.
The more frequently used forex strategies
Just as there are more frequently used currency pairings, there are also more frequently used forex strategies. The reason for this is that some strategies are easier to use, or some are more suitable to the needs of most people. Below are three of the most common strategies on the forex market.
1. Trend trading
Trend trading is a forex strategy whereby a trader analyses and rides long-term trades. This is best used by individuals who enjoy watching transactions progress over time. A disadvantage of this trade is that the forex market can swing at any moment, should this happen the trader will need to adapt their strategy quickly. Furthermore, the risk of trend trading is rather high as no-one can predict future market movements perfectly.
2. Fibonacci trading
Fibonacci trading is a strategy for those who enjoy maths. This trading strategy uses mathematical patterns to determine when to trade. However, while it can be used on its own, it is most effective when combined with different strategies.
The scalping strategy is for the impulsive individual who wants instant gratification. When scalping a transaction will not last more than 5 minutes as most, so one must be highly alert to the movements of the market. The greatest problem with this strategy is that not much profit is made per trade.