How to Determine Which Trading Strategy Is Right for You

Category: HOW TO 1

Success in the Forex market almost solely depends on the right trading strategy. Stay with us and learn how to build your own today!

How Do Traders Select the Appropriate Trading Style?

The rapidly growing popularity of Forex brings more competition to the market. Every experienced trader and the long-time investor will notify you to build a profitable trading strategy if you want to succeed. 

However, this is never an easy task to do, especially for novice traders. While you can get advice from various sites and resources, what you choose in the end is entirely your own resolution. Let’s consider some crucial factors that define a lucrative trading style. 

Factors to Consider When Choosing a Trading Strategy

Whatever the course of action, there’s always more than one variable to discuss. Several resources that define your game plan affect the final result greatly. 

The most relevant factors that influence the shape of your trading plan are time, money, risk tolerance, and goals. We will soon elaborate on each of the subjects individually. 

What we’d like to remind you is to detailly assess your capabilities for each of these elements. How much each of them you are willing and able to invest could reshape your trading potential. 

Time

How much time your investment spends on the market could definitely influence your trading game. If you’re the type of trader that has a day job and other bigger responsibilities in life, perhaps position trading is the right strategy for you. Not being able to sit in front of a computer for a long time observing the market is convenient for position traders. 

On the other hand, having extra time is helpful for diving into the detailed analysis and spending a considerable amount of time watching the market fluctuations. Day trading would be the right way to approach the buying and selling of instruments in that case. 

Money

Your true earning potential is conditioned by the amount of cash you’re willing to put on the line. To buy and sell financial instruments, you need to be ready to put some real cash in. 

If you’re a trader with a hefty stack at your service, day trading might be just the thing for you. Generally, day trading is what requires the biggest investing capabilities. 

Other aspects of trading that could be pricey and have to be considered as well are commissions and trading fees. Each broker-dealer may have a different fee policy.

Risk Tolerance

There’s no successful trader that isn’t ready to risks. A certain level of probability follows every investment. How much risk and excitement you’re able to handle may limit or expand your trading skills. 

The Forex market is sometimes all about going a step further and accepting a greater risk than your competition. On the other hand, a non-negligible quantity of cash in the game may be multiplied or lost in a matter of minutes. 

Fast-paced day trading brings chances but also threats. So if you aren’t the type who easily accepts that, you could be more suited for position trading or swing. 

Goals

Everyone joins the online trading rush with different ideas and expectations. Some traders may be ready to invest their life savings and risk it all looking for extensive profit. Others may just be looking for several minutes of adrenaline without paying too much for it. 

Each trader has a vision or an investment goal that could push them into more risks or patient trading. Goals are also additional motivation and something that guides your decision-making when opening and closing positions. 

Different Strategies for Forex Trading

One quite interesting thing about the foreign exchange market is that it has as many trading strategies as there are traders. Since every single investor values the general trading factors differently, their investment plan can be more or less similar to others. 

The combination of these elements produces a unique trading approach. Someone may not have much time for trading but is ready to invest big. Others are ready to dedicate their every minute awake to watching the market and jumping into risky trades. 

Contrasting behaviors of traders have inspired the experts to define several distinctive trading strategies.

Day Trading

Pretty self-explanatory, day trading is limited to one-day positions. Traders are buying and selling instruments sometimes in a matter of seconds. Holding your position as a day trader may be only for a couple of minutes and sometimes even less. 

Since this is a dynamic and risky way of playing your investment game, it’s usually not for the faint of heart. Staying level-headed and thinking quickly enough to outwit your competition is crucial.

With the help of cutting-edge technology and a decent amount of courage, day traders are able to gain an advantage in the ever-changing market.

Scalp Trading

A popular form of day trading, scalping is often considered equal to day trading. Scalp trading is focused on small price changes.

Investors hold each position for a very short time, often calculated in seconds. If you manage to complete several of these trades during your day, you can describe your strategy as successful scalping. 

This is not the only type of day trading. Another popular trading style is momentum trading. It is based on catching the already active positions and jumping in time to make a profit. The most important instance is closing your position in time before the tide shifts. 

Swing Trading

Convenient for traders unable to glare at their screen for a long time, swing trading includes open positions overnight. 

The thing with swing is trying to hold onto a position until the trend finishes. Since this style brings exposure to greater risk, you have to plan your investment much more thoroughly than you would in a fast-paced day trade.

Staying up to date with relevant changes and market movements is only possible with the help of detailed technical and fundamental analytical tools.

Charts showing hourly, daily and weekly changes are also a must. Keeping the trends on your radar and jumping in when the moment is right is how you succeed as a swing trader.

Position Trading/Investing

Position trading takes the most time before the trade is executed. That’s the exact reason why it’s also called investing. 

Patiently following the market changes before finishing your position may sometimes take a long time. Traders sticking to this trading variation have to be patient and take even years before closing their position. 

Sometimes market fluctuations may disrupt your patience and dare you to act. The key is staying tolerant of temporary changes while waiting for your reward. 

Support and Resistance

Support and Resistance are invaluable elements of technical analysis. Understanding how to read charts efficiently depends on how well you understand these two concepts. 

Support represents a part of the chart that shows the investor’s readiness for buying. If that is so, resistance is treated as the opposite of support. 

Both values are present in the charting (hourly, daily, and weekly). The longer the time frame the more significant support and resistance become. 

Pullback and Retracement

A pullback happens when there’s a short stop or a minor drop in prices during a continual rise. This term is often used when traders are explaining price droppings that last a very short period of time. 

A small change of direction regarding the financial instrument is commonly referred to as retracement. It is basically the event of the price going against the trend. When the retracement stops, the financial product usually continues with the previously present trend.

Conclusion 

We sincerely hope our article on trading styles shines some light on the ever-persistent issue of choosing your ideal strategy.

Basically, the best advice you can get is to experiment as much as you can. Trying out different trading plans and ways you act on the market might bring insight into what suits your trading potential the most. 

Not everyone can invest the same amount of time, and money and manage the same risk. The key to successfully using your existing resources is discovering as much as you can about your trading personality and abilities. There’s no better way to do that other than practice!

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