Ask the Right Questions
There are dozens of different strategies and it can be quite a challenge to choose the right one. In order to narrow the choice, you should start by answering the following questions:
- How much time do you plan to devote to trading?
- How much are you willing to invest?
- How dynamic and risky should or should not your strategy be?
Now let's discuss how these answers will help you with your choice.
Trading on Different Timeframes
Each trader devotes a different amount of time to trading. Someone does not leave the computer for the whole day, and someone looks at the charts only a couple of times a day. How so?
Depending on a timeframe, Forex trading is divided into three styles:
- Swing trading
- Intraday trading
- Scalping
Swing traders prefer daily and weekly charts and open long positions that they hold for days or sometimes even weeks. You don’t need to constantly monitor his type of trades, that’s why this trading style takes a little time.
Intraday traders use daily and 4-hour charts. This trading style includes trades that last a maximum of one day, thus traders usually look at the charts only a couple of times a day, depending on the features of their strategy. For novice traders, this style is optimal, as it allows you to quickly learn how to feel the market.
Scalpers trade on 1-15-minute charts. They open short positions and constantly monitor the market in order to make quick profits. This trading style requires maximum engagement. If you are not ready to devote much time to trading in the market, then this style will not suit you.
Think About Money
Each trading strategy implies its level of risk and the amount of investment required. Some strategies allow you to put as much as possible on a potentially win-win deal. In others, you can risk only 1% of the investment size at a time.
The same with the initial deposit size. Some strategies require particular capital to support positions during possible drawdowns, some don’t.
When you have the answers to these questions, it will be much easier for you to choose your strategy.
Choose Multiple Setups
Before you open a trade that suits your strategy, you have to make sure it meets certain criteria. If you have only one set of such conditions in stock, then there is a high chance that you will rarely come across suitable trades. At such moments, impatient traders often move away from the trading plan and start trading at random, which leads to significant losses.
That’s why you should have multiple suitable setups. This way you can open potentially successful trading positions, while accurately following your plan.
To Summarize
No matter how simple and clear your new trading strategy might seem to you, make sure to practice it on a demo account first. Only when you check how your strategy works in all possible market situations, you can proceed to trading with real funds.
And one more thing: to cope with the flood of emotion that will certainly await you when switching to a live account, make sure that you have a reliable trading plan and a proper risk management system. Strategy, plan, and risk management are the three things that will make you a successful trader.