scalping

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

Scalping for Beginners

Scalping for Beginners

One of the challenges new Forex traders face is deciding which of the various trading styles — scalping, day trading, swing trading, or position trading — to follow. While each of these styles can be profitable when followed properly, as a beginner trader, you need to be sure that scalping is the right trading style for you.

In this article, we will discuss the basic things a beginner should know about Forex scalping, including what scalping is, the personality for it, the charting time-frames, and the various scalping strategies for a beginner.

Table of Contents

Forex scalping is a style of trading style that tries to profit from minor price movements mostly on the lower time-framed charts. It is a fast-paced style of trading and the quickest way to earn some profits from a trade, no matter how small. With this style, a trader opens and closes his trade once it has earned a little profit or loss (5 to 10 pips) and move on in search of other trade setups, with the hope that the little profits will accumulate over time.

A trader who uses this style of trading is called a scalper. Depending on the time-frame a scalper uses, a trade may last from a few seconds to some minutes. Most times, scalpers don’t hold their positions beyond a few minutes — whether profitable or not — as they are always analyzing the market for any sign of weakness.

One thing which traders try to avoid in Forex scalping is taking a large loss from a trade. Some scalpers use profit targets and stop losses to ensure fast exit from the market. Others employ strict manual exit strategies. The manual exit strategies help traders execute entries and closes more swiftly, but it can add risk. If you are leaving open stop losses, and a trade goes quickly the wrong direction, you could take a much bigger loss than intended.

 

Scalping is a very tedious and mind-wrenching task — watching the market all the time, analyzing every bit of price data whilst entering and exiting trades swiftly. That is why many legendary scalpers are looking into algorithmic trading. They try to automate their Forex scalping system by creating trading robots. Over half of the trading on the stock market is now reported as automated, and only 10% are from retail clients!

Forex scalping is not for everyone — not all traders can bare the risks involved or have the temperament to effectively implement the strict rules needed in scalping. So, if you must scalp the market, be sure that you have the personality for it.

A scalper must have the ability to concentrate on the market for a long time, so should be someone who enjoys sitting in front of the screen analyzing the minute-by-minute market data. The slightest bit of distraction can cause a huge loss.

The ability to monitor markets for prolonged periods of time is not the only scalping requirement. To effectively scalp the Forex market, the trader must be able to react quickly to changing conditions in the market. He must be able to pull the trigger without hesitation when he needs to do so.

 

In other words, a delay is very dangerous when scalping. For instance, if you fail to quickly take your profit, the market may turn against you and wipe out the profit in a split second. You may even end up taking a loss. Similarly, hesitating to close a losing trade may lead to a larger loss which could eliminate the many small gains you have had. We have noted the necessary traits of a good trader. Please click here to read more on the psychology of trading.

When scalping, you are trying to capture the slightest price swings in the currency pair. So, it makes sense to analyze the market on the lowest possible time-frame.

Many Forex scalpers trade on the 1-minute chart or the tick chart, but some may trade on the traditional 5-minute chart. However, it may be best to employ the multi-time-frame approach — using multiple time-frames and the tick chart.

 

With this approach, you may analyze the market on the 15-minute and 5-minute charts and step down to the 1-minute chart or the tick chart for a better entry level. After entering a trade, you monitor it on the 1-minute or tick chart.

There are many ways to scalp the market. For most traders, scalping involves using technical analysis signals derived from price actions and indicators. However, some scalpers like to trade the high-velocity moves that happen when important economic data is released.

 

These are the common Forex scalping strategies for beginners:

This strategy is based on the fact that price moves in waves and tends to revert to its mean value after moving significantly away from it. Scalpers who use the mean-reversion strategy don’t care about the direction of the trend. One popular indicator for this strategy is the Bollinger band — either used alone or in combination with an oscillator like the stochastic.

A screenshot of scalping with Stochastics.

You can trade this strategy using a moving average indicator or a simple trendline to indicate the trend. Then, use a momentum indicator, such as stochastic, RSI, OsMA, Williams R%, CCI, or MACD, to estimate when a pullback is over.

Another simple scalping strategy is to trade price bounces at a strong support or resistance level. What you need is to identify the resistance or support level and wait for the price to get there. If the price gets there and reverses, you may place a trade in the direction of the reversal.

 

Before using this strategy, make sure that the market volatility is low to reduce the risk of sharp breakouts. Also, you need to learn reversal candlestick patterns and look out for them when a bounce happens.

Some scalpers love the high volatility that comes with the release of economic data. Examples of this include the non-farm payroll (NFP) and the CPI, or a speech from a central bank governor. Certain political news can cause huge price movement too.

 

It is important to know that scalping a highly volatile market is a double-edged sword; can make huge profits if you’re right, but you can lose more than planned if you’re wrong.

Conclusion

Forex scalping is a fast-paced trading style in which a trader aims to take numerous small profits. It may be a fast way to make money in the Forex market for a beginner, but it can also be the fastest way to ruin a trading account. Be sure you are up to the task before choosing this style.

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