When it comes to dispensing the best trading strategy advice, everyone will have their opinion. Sometimes they will be backed up by statistics, other times it will depend on prevalent trends and what is “hot” right now – whether it’s shorting the market with ETFs and strategically exploiting them or using fractals in trading. A good understanding of these concepts can be used to your strategic advantage. Others allege, however, that personality fit, or being able to focus, is everything.
While a strategy that proves consistently good is bound to include the size of your position, managing risk and knowing when to exit a position, the truth is that there simply isn’t one single strategy that is absolutely guaranteed to work each time. Those who think that way are ignoring the fact that trading is, in and of itself, subject to risk.
Besides personality fit, you also have to consider the trading style involved: are you a day or swing trader? Are you a long-term positional trader or into forex trading? Do you like to excel in very short-term trades, such as scalping?
The other factor to consider is price action, or technical analysis, and how big of a role it plays. Two main styles complement this best:
- Trend following
- Counter-trend trading
Forex strategies for trend following
Trend following strategies involve seeing patterns and using indicators to determine when a new trend might have emerged. Because you’ll generally only see a trend when a lot of data has been generated by mass movements regarding stock, for example, this is one of the most effective systems. After all, it is also one of the safest.
The best way to practice trend following is to be able to tell via an indicator when the odds are swinging in your favor, such as being able to tell a trend has begun before other traders realize this.
The hint or indication that a trend is forming is called a breakout. Trend following demands longer focus and can therefore be psychologically more draining. In the interim, gains may be wiped out, false trends may emerge, and trends might seem to be emerging only to be later revealed as false trends.
Most adherents to trend following use the Donchian Trend system to some degree. Donchian channels, which were invented by CFD trading expert Richard Donchian, show when trends are forming. You can use the basic concept to suit your parameters. In the context of a 15-day breakout, Donchian suggests the following:
- Purchase if the price of a market moves above the high of the preceding 15 days
- Sell if the price drops below the low of the previous 15 days.
If the market is not volatile:
- Go short if the 25-day moving average is less than the 300-day moving average
- Go long if the 25-day moving average is more than the 300-day moving average
Going counter-trend as a forex strategy
In theory, this is the best strategy to help you gain confidence. Theoretically, counter-trend strategies are the most effective Forex trading strategies that build confidence due to their high success ratio. Counter-trend strategies rest on the proven history of most breakouts not going the distance and becoming proper trends. You’d therefore trade by gaining an edge from the tendency prices have to rebound from highs and lows attained in prior periods.
If you use this strategy, make sure you have a relatively calm market and can pay it constant attention. In trend following, counter-trend or any other strategy, make sure you understand the fundamentals, the technical analysis and the risks first. Always make sure to reasonably master one before going onto the next, especially if the next one involves more complexity.