an overview of trading psychology

The Best and Worst Forex Trading Strategies

The Best and Worst Forex Trading Strategies

Strategies in Forex market operations are a fundamental part of being able to achieve success, since without one, you will find yourself adrift and simply gambling with your money.

 

Having a strategy provides security and discipline. Finding the perfect strategy is not easy, it requires tests and time to be invested. Of course, just having a strategy does not mean that you are assured of success; on the contrary, using a not-so-good strategy can make you lose a lot of money. Next, we will explore various strategists who, after being tested and analysed, can be classified as bad or good strategies.

Please note that this is only a very brief overview, to see in-depth analysis and education, you will need to find our writings where we discuss specific trading techniques.

Table of Contents

Normally when discussing the different strategies available in the Forex market, they focus on a specific trading method that unfortunately is nothing more than a facet of a complete trading plan and does not represent the entire negotiation process itself.

This leads us to wonder: How do I know how good a Forex strategy is? Well, the answer lies in the fact that if the strategy is advantageous and consistent then it is good.

 However, you must have in mind other aspects of the strategies so that you’ll make sure that you are following the right path.

– Position’s size

– Risk Management

– Ways to exit a trade

A good strategy will depend massively on the type of trader that executes it, since the trader has the responsibility to understand his personality as a trader obtaining from this self-study the right amount of  knowledge to find the best Forex strategy that can adapt to its needs.

 

Therefore, we will focus on simple, basic and generic strategies that adapt to any type of trader. Here at The Doji Trader, we believe that psychology and personality play a huge role in the success of any trader, if you would like to find out more information on this, please click here.

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By using this strategy, you gain an advantage in the 60-minute time frame when you enter the market. The currency pairs that are usually traded using this technique are EUR / USD, GBP / USD, USD / JPY and the AUD / USD.  

 

To make good use of this technique, you must make use of an impulse indicator of 100 pips, as well as indicator arrows; tools you can find in MetaTrader 4.

Buying with this Strategy

The pips indicator will give you the signal when it is the right time to use it, it will be when the Momentum 100 pips indicator activates a buy signal and the blue line is ready to cross the red line from below. Once that is ready, the stop loss should be placed just below the red line of the indicator. Once these steps have been followed, the trade can be closed after 30 pips.

Now, if you want to sell, then you will have to enter a short position just at the moment when the 100 pips Momentum indicator activates a sale signal when its blue line crosses the red line from above and the Indicator arrows proceed to give a red arrow sign.

 

Finally, you must place the stop loss on the red indicator line and once this is finished, you must proceed to close the operation at the moment when the indicator arrows give a green arrow signal.

The purpose of this strategy is to capitalize on some unique opportunities to be obtained through the additional volatility obtained when London opens. Despite being a very specific technique, it is also very good. It can be used at any time, especially when the price drops sharply in one direction, it also allows you to return from a very strong support / resistance area.

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Although most currency traders prefer to do their intraday trades, since market volatility generally offers more positive opportunities in narrower terms, usually the weekly currency trading strategies can provide more flexibility and stability.

For example, a weekly candlestick can provide you with a lot of market information. This contains five daily candles and changes that give visibility to trader on the real market trends. Then, all weekly strategies are generally based on lower position sizes thus avoiding excessive risks. 

 

 In order to use this strategy, the use of the exponential moving average indicator is used. Then, the last daily candle of the previous week must be closed at an objectively higher level than the exponential moving average value. Once this happens, you should look for the moment at which the maximum level of the previous week is broken, then proceed to place a purchase order in the closed H4 candlestick, considering that it must be at the level price level broken.

These types of strategies are useful as most of the breakdowns do not usually become long-term trends. Therefore, a trader who uses this type of strategy has the objective of obtaining an advantage of the tendency of prices to recover both in the maximums and in the minimums that were previously established.

 

These are considered the best Forex trading strategies, because they generate a lot of confidence among traders because of their high success rate.  

In all types of markets, we will many techniques that are not as feasible or advantageous as others. It is important to keep in mind that if we find offers from people online, or many trading ‘miracles’ that sound too good to be true, there is a high probability that it is actually too good to be true…

 

Below you can find some strategies that we do not recommend when trading.

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This strategy is very popular among beginner traders. It is a scam and only used by inexperienced traders and charlatans, it is unfortunate that so many will blow their whole trading accounts by following this. The plot of this technique is based on chasing your losses by subsequently adding larger operations to your already losing position in an excessive way.

It is well known that the sensation when using scalping is very good, you are the boss and trade expert. 2 pips here, 3 pips over there and you feel so excited that adrenaline can be savoured. But as on many trading accounts, you will find yourself at a disadvantage due to the spread. To be more specific, let’s see it this way: when a winner of 4 pips is hit, the market is in the duty to immediately move 5 pips and thus cover the cost of its margin / commission. This means that the spread is consuming 20% of its profits and is also amplifying its loss just before the price has moved.

 

For this same reason, it would need to beat the market by a very wide margin in order to counteract the spread that corresponds to each operation. Although it doesn’t seem like a significant loss, it will cause this minimal statistical disadvantage to deactivate your account.

However, it must be noted that we believe scalping to be one of the most effective and useful trading strategies, and it is so popular among both professional and retail traders. It is not an easy task, but if you feel up to the challenge, you can begin your path to being a great scalper right here. If you wish to scalp for profits regularly, but feel that the high spread of your account just renders your time unworthy, then why not look on our broker reviews to find out which broker is the most cost-effective?

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Knowing that not all currency pairs behave in the same way is to be a mature and responsible trader, however, not everyone manages to be that way. Each currency has its own peculiarities, so each one will move differently, and the inhabitants of each nation will sell and buy their coins depending on their territorially political and economic situation. Therefore, decisions are made every day that will affect the movement of a particular currency in one way or another. So, this leads us to the conclusion that these types of practices (or strategies) should be used less times than recommended, there are many operators in the market who are dedicated to apply this strategy over and over again even if they don’t get results, either from boredom or despair and desire for quick success. It is critical and basic thinking, knowing that the idea of exchanging several pairs at once is a mistake and that it is best to concentrate on one and take care to study it properly.

 

Once you find a currency pair that really works for you and to which you can extract good profits, you can consider expanding your sales and purchases. Trading is often about finding where you have an edge on the market and zoning in on that specific area.

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Summary

It is always good advice to take to know that the fact that a strategy works for another person does not mean that it is equally successful for you. However, there are strategies that are usually much more general and that usually work for a good percentage of the population, which means that trying them is not a bad idea. On the other hand, if we are in front of a strategy that seems to be a fraud and that has several negative aspects, it would be best to stay away from such strategies, to avoid unpleasant moments and significant losses.

 

But the most important thing is that any strategy that you have not used before, you should try it for a while, without risking much of your capital, in order to draw your own conclusions and even customize it.

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This does not constitute investment advice or personal recommendations as your specific financial circumstances have not been considered. No warranty is given in regards to the accuracy and completeness of information. Past performance is not an indicator of future results.

Posted by Alex in Lessons

An Overview of Trading Psychology

An Overview of Trading Psychology

In the world of trading and within each known market, such as Forex or the stock market, you will find that there are several things that each trader must consider and must study in order to become an expert.

This type of knowledge needed ranges from the definition of the market to work itself, operation of the different platforms used competition, economy, and adequate amount of capital to invest and, above all, what type of market will you choose to start.

But there it is a very important aspect that most traders often ignore because they take it for granted; the trading psychology.

It is necessary to understand that the success of any type of business or investment will always depend on us and of course on the way in which we handle a situation or execute each of our thoughts, therefore, psychology is fundamental in the commercial world, in all markets.

The trading psychology is undoubtedly the most important discipline that must be handled and studied by any aspirant to trader in any market, such as Forex trading. In the world of Forex psychology is necessary; this type of investment is attractive for many people around the world due to its ease and comfortable platforms to use. However, the use of psychology becomes a main step to manage if you want to be a very successful trader.

Now, a good advice to start the issue is that: self-confidence and emotional control are the fundamental pillars that are responsible for operating the psychology of trading and of course, manage your emotions, leading to success.

Table of Contents

To begin shaping the aspects that make up the trading psychology, let’s talk about certain elements that we will call enemies of the mind. The enemies of the mind are nothing more than different emotions that give a negative result or effect on the trader’s mind. These are enemies that you must know well for you to have the tools to face and defeat them.

Fear

 

The first enemy is fear. We define this as an unpleasant sensation accompanied and loaded with anxiety or apprehension that is weighed in the person due to the presence or anticipation of the danger. When there is a trader operating, this feeling comes often; it is one of the most common enemies of the mind that the trader will face. This always happens when you are an inexperienced trader and you are starting. Despite being a normal feeling, many times it can get out of control and nobly affect any strategy the trader has.

Fear can also appear in experienced traders, especially when they get a couple of losing operations, which lead them to feel overwhelmed by fear. The important question is how to deal with it? This can be accurately answered; basically, the best way to deal with fear is to move away from situations where you risk more money than you have available, since with caution, fear disappears.

Euphoria

Although normally this feeling is characteristic for being a good thing, since it gives the trader a lot of confidence and security in themselves and their strategy, it can also be very dangerous, simply because it can get out of hand and in that case we would find a trader who is overconfident and can make decisions that will bring them regrets in the immediate future. This enemy usually makes presence after the trader gains a great amount of profits or nails their entry. Statistically, the greatest commercial losses occur after a couple of quite lucrative victories, so a great trader must not only hit these abnormal profits from time-to-time, they must control their mentality so that they can safely exit with these profits and not damage their account in the long-run.

Now, to be able to solve this, a good measure is to concentrate on what you are doing, always remembering that everything in the market will always be about probabilities and of course the sensible decisions made by you. Like the previous advice, the best thing you can do is not to risk more money than you have to spend. There have been circumstances where after traders largest winning streaks, they have been given larger budgets, and blown everything. New biological discoveries into the “risky highs” of trading from John Coates, a trader turned neuroscientist, argue that due to the euphoria and the chase of new highs and abnormal profits, traders are at higher risk of losing their profits due to the increase in testosterone, and so giving larger budgets is counter-intuitive in reality. Instead, firms should give their traders a cooldown period of three weeks so that their body can normalise until their “biology resets”. 
Source, Reuters. Scientist, John Coates.

Panic

Of all the feelings, panic is one of the most curious enemies, is defined as a sudden feeling that comes loaded with fear in excessive amounts, is usually sudden and overwhelming, in addition to uncontrollable thoughts or action. Due to its characterization it can feel a bit like fear, however it is much worse, since it is paralyzing and much more irrational.

The trader must always be alert and active, not only to monitor their business, but to prevent violation of him/herself from going against their rules, or trading without caution. This is considered an enemy that approaches silently in different situations, in novice traders and professionals alike, amid situations where there is a lot of pressure, or when they witness stories of how other people are having or had significant losses in the market. Another event in which it can occur is in periods of market volatility.

Of all the hindering feelings, this is the worst, because a panicked trader will make many mistakes and it will find themselves unable to perform a logical analysis of the situation in which he finds himself. There really is no specific way or infallible advice to avoid the appearance of this feeling, usually the possibility that this type of situation occurs decreases as the trader gets experience. But something important is not to believe everything that is heard or read about other people’s experiences and remember that everything is about probabilities. Many traders now believe that the main cause of profit and loss is your mentality and psychology as a trader, not just the analysis.

Here are some quick tips from us to stay on top of the negatives caused from psychology:

·    Try hard to find the right trading strategy for you and stick to it. You will be able to accomplish this by studying other trading strategies before and after you choose it 

·       Manage your risk, always remember that.

·       Know yourself, through the study of your emotions and been aware of your reaction to different situations.

·    Stay organized. Taking care of this point can be a bit difficult, but it is essential, a good idea can be to have an operations diary where you can track your progress and thus study the correct and incorrect movements made by you, this being a measure preventive So you can have a kind of guide on what to do and what not to do in the near future.

·   It is never too early or late to walk away. Many traders leave the screen once they earn or lose a certain amount of points a day, why not give this a try? Consistency has been linked to a more healthy mind.

Summary

The best way to deal with any situation that triggers emotional problems and unwanted feelings is having a logical method at hand to trade with a minimum margin of error. And the best way to harvest it is by studying the market in which you have decided to operate more thoroughly.

This does not constitute investment advice or personal recommendations as your specific financial circumstances have not been considered. No warranty is given in regards to the accuracy and completeness of information. Past performance is not an indicator of future results.

Posted by Alex in Lessons