In South Africa, online trading is vigorous. Residents easily connect to the colossal currency market. Every day, close to 6 trillion US dollars is exchanged between its participants. Individuals trade alongside institutions like banks and hedge funds. So, what strategies do they follow?
There is no universal roadmap. Traders choose different time frames and indicators. Rookies should learn about the most common systems first. Here they are.
This style is the most hurried and possibly the most exhausting. Trades are extremely short-lived, lasting a few minutes each. The idea is to capitalize on the spread. Profit amounts to several pips per trade.
The focus is on frequency, rather than large profit. Scalping involves the shortest timeframes. Suitable indicators are found on recommended trading terminals like MetaTrader 4 Supreme Edition.
Here, the premise is that all traders must be closed within the same day. This protects you against adverse overnight movements. Traders who leave positions open overnight expose themselves to higher risk. News received after market hours may sway the prices upon opening.
This style is popular with rookies, as it is relatively straightforward. Usually, a trade may last a few hours, which requires corresponding price bar settings.
This style is most suitable for people pushed for time. Swing traders focus on medium-term trends. They hold positions for days or even weeks. Hence, they do not have to monitor the market all day long. A few hours in the evening could suffice. For someone with a full-time job, this is a feasible system. Learn how to Swing trade here.
Finally, this style looks at the longest term possible. Traders pursue major changes in prices to maximize returns. Typically, they base the analysis on end-of-day charts. As the time frames are so long, you need a special mentality to follow this strategy.
Successful positional traders are well-organized, disciplined, and rational. They keep calm. The market may tempt them to abandon the plan and reap quick profits. Find out more about these trading strategies on the ForexTime site. Test proven FXTM Forex trading strategies in the demo mode first.
Trend-Following or Counter-Trend Strategies
When a price breaks out of its range, a new trend may emerge. Some traders will buy above resistance and sell below support. They expect the trend to continue and rely on technical indicators to spot entry points.
However, this thinking is not shared by everyone. Another group of traders prefers to go against trends that seem to have emerged. They make decisions expecting that the price will bounce off the new high or new low, and return to the range.
So, which view should you choose? This depends on the state of the market. Follow the trends in stable environments. In times of high volatility, prices move unpredictably. It is therefore easy to make a mistake seeing a trend where there isn’t one.
The size of your positions must be determined rationally. Do not initiate large-volume trades just because you think the market is moving in your favour. Sometimes, trends reverse, and overconfidence is dangerous.
The rule of thumb is to risk no more than 1% of your capital per trade. For instance, for a $100,000 balance, it is $1,000. Next, decide how much you are willing to risk on the trade by setting your Stop Loss value. The difference between the entry price and Stop Loss is your risk in pips.
Trusted Forex brands have handy calculators that show the value of a pip in the desired currency. Using this information, you can calculate the size knowing that: the number of pips risked*pip value*position size = $1,000 (for the example above).
Every solid system includes several key parameters. These are basic Forex terms. Traders are encouraged to keep a journal and note down every single decision. This way, they can review their own performance in detail. Success is based on self-reflection and improvement. With a written record, you can see what works and what doesn’t work for you. So, for each position, note down the following:
- Position size (how many standards, mini, or micro lots you traded);
- Entry and exit price;
- Financial result (profit or loss made);
- The volatility of the market (how dramatic were the changes);
- Any other comments (why you entered the trade and how you chose the exit points; any feelings that may have affected you thinking, etc.).
You may think that emotions are irrelevant. In reality, they are the most common cause of mistakes. Traders chase losses and open positions because of enthusiasm. Negative and positive events may cloud human judgement, so strategies are abandoned. This creates precarious conditions and often leads to losses.