What strategy is best for you and why?
Dear Traders,
In the 5 Trading Myths blog entry I have stated why you should always have your tripod of successful trading standing firmly on the ground. When you decide to trade your first step is choosing a fully regulated broker then creating a professional business plan. The core of your plan should define the strategy, the overall risk and expected ROI (return of investment). Choosing a strategy is a very important task for you and we are going to help you find one that suits you the best.
Different trading dimensions
Trading is a very delicate job. In the forex market there are so many tools you can use in order to make money. By "dimensions" I refer to specific styles of trading that are very diverse. Those trading dimensions are:
- Price Action
- Indicator based
- Price Action/Indicator combination
- Harmonic
- VSA
- Range bars/Renko/Any offline chart
Now you know a bit more about different trading dimensions so have in mind that the dimension you choose will define a strategy that you will be using. We have covered all important dimensions with our webinars so feel free to watch it and be informed about it.
Different time frames
Before you start to trade try to think about the time perspective. The time horizon will play a big factor in which time frames are to be chosen. This can range from as low as a 1 minute chart, where the candle is formed every minute, to monthly charts where the candle forms once every month. Remember that each candle lasts for the specified period of time unless you are trading with the range bars which are completely immune to time factor.
In trading terms anything below an hourly time frame can be considered short-term. Scalping and scalp swings are good examples of trading short term. Hourly and 4 hour time frames are optimal for intra day and intra week swing trading so we can say that anything below a daily time frame can be considered medium-term. Daily and above time frames can be considered long-term, especially weekly and monthly chart. I personally have never traded weekly and monthly time frames as it feels more like investing. Trades simply don't happen often, usually 4-5 per year, Weekly and monthly charts are prone to sudden monetary policy effects and natural disasters. Just remember the EURCHF carnage. Just before local lunch time, SNB crushed every single macro hedge fund with the announcement that they are removing the EURCHF floor effectively unpegging CHF from EUR. As soon as it announced this, a massive crash happened, collecting algo stops below 1.1999 which margined out EVERY long position in EURCHF. I was pretty much lucky as all my accounts are held with Admiral Markets so my stop-loss has been hit but there was no GAP down with the price on my account.
Just imagine what happened to all the poor investors who lost all of their accumulated profits for 3 years and went broke.
Considering different time frames we can generally recommend 5-15 min for scalping, 1H-4H for intra day/week swing trading and daily time frame for mid to longer term trading. Scalping is very fast paced and requires a significant amount of attention throughout the day to find and take trades. Day trading is when orders are opened and closed within a single day. It does not rely as heavily on fast price action, such as scalping. Day trading extends to swing trading where positions are usually held for throughout the week. Mid to long term trading requires a lot of patience and traders need to be prepared for big price swings and draw downs.
How to pick a trading strategy that best suits you?
Remember - we want to trade a system that is worth the time effort. Each dimension is different and each Forex strategy is unique. In the video below I have explained the most important factors that you need to consider when choosing the optimal FX strategy.
I have explained the most important things for choosing the strategy and dimension of trading. If you have any questions or comments, do not hesitate to ask us in the comments below.
Cheers and good trading,
Nenad / Chris
