How to Identify Forex Strategies That Work
Almost every successful trader knows that discipline plays an important role. Having working forex strategies can help you maintain your discipline and be profitable.
If the strategy has been backtested repeatedly, you can be confident to use it even when the odds don’t seem to be on your favor. While some people interpret forex strategies as a certain trading method, it refers to a strategy that offers advantageous market entry points depending on your personal preferences. As such, each person has their favorite strategy that capitalizes on the trading traits.
Trend following strategies
At times, you may realize that a market has broken out of range hence starting a new trend. If a market registers new lows, some buyers will wait before making a purchase since they want the price to get lower. On the other hand, some people will panic and sell off their assets. This will happen until the buyers are convinced that prices are at their lowest point.
As such, most trends following strategies tends to sell when the market has gone through the established support level and will only buy if a market has broken the resistance. However, trends can be quite long and unstable. This strategy is characterized by big moves and this makes it among the potentially profitable forex strategies. Despite the fact that it uses a solid indicator to notify you when a new trend is starting, it can be cumbersome to identify some trends.
The counter-trend forex strategies
Almost every counter-trend strategy is built on the belief that certain breakouts don’t become lasting trends. If you are using this strategy, you are basically trying to profit from the tendency of the market to revert back to previous trends.
Theoretically, this is a great strategy if you want to become a confident trader because of better success rates. Nevertheless, you have to ensure you have a good risk management plan when working with this strategy. The risk becomes bigger every time the resistance and support levels break.
To achieve success with this method, you have to closely monitor the market. Because the market can change states quickly, you need to keenly look for indications of a changing state and then decide if it suits your style.
Which strategy should you use?
It’s possible to spend several years working with inappropriate forex strategies. If you want to make more monthly income, you have to identify more opportunities. This means you will trade in shorter timeframes and dedicate more time to do the analysis. On the other hand, if your goal is to create wealth; you’ll need to trade higher timeframes with less time on computer screens.
Depending on the time you have committed to trading, you can either choose a shorter timeframe or longer timeframe. To make up your mind, take a look at your overall commitments in a day. It is important to note that all approaches can be quite profitable as long as it is congruent with your trading style and you can follow it religiously.
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