The first step in choosing a trading strategy is knowing what type of trading you will be doing. There are many different types of Forex trading. You could be doing automated trading and need to evaluate the trading strategies that are relevant to that. Part-time trading often means that you should be using a swing trading strategy. Full-time day trading will require a completely different type of strategy. Position traders who are in the market for the long haul will have a different strategy entirely.
What type of Forex trading you will be doing is decided by a few different factors. You need to know what your goals are, what your availability is for being involved in trading decisions and following the market, and you need to know what your personality will be most comfortable with.
Of course, within each of the different types of trading there are different strategies. Traders are people and each person has a unique way of looking at things and dealing with situations, making an infinite number of possible trading strategies. Once you determine what type of trader you are, you can explore the possible strategies within that category and choose one that works best with your personality.
Within day trading, you could choose a very fast paced strategy which is often called scalping. Scalpers believe you can multiply profits by paying attention and capitalizing on small changes in the market, trading large amounts with small gains and a quick go in and go out strategy will maximize their profits and make the most out of their trading day. A person who wants to trade Forex as their full time job is the type of trader who can consider adopting this strategy.
Another strategy that day traders who enjoy the thrill of risk taking can employ is called fading. This type of trading means that the trader goes against the prevailing market direction. It is risky because it depends on reversals after a sharp decline or increase in the market. The risk is mitigated by following risk management rules.
Day traders sometimes use a strategy that relies on a statistical tool called the pivot table. This trading strategy depends very strictly in statistical information, operates more scientifically than other trading strategies and follows risk management rules very strictly. There is less thinking and more numbers involved in adopting this strategy.
Swing Traders are traders who intend to trade part time, and hold onto their positions for a few days at a time. Within this type of trading there are again a few different common strategies which are used and adapted to match the specific trader’s personality.
Among the strategies that swing traders often use are Breakout Trading, Retracement trading and Reversal Trading. Someone who chooses to be a swing trader should examine all of these strategy, choose the one that appeals to them the most and then adapt it to their personality and make it their own.
The same advice goes for positional traders. You can explore the possible strategies within the type of trading, choose one that speaks to you directly and then when you use it in your own way, it becomes uniquely yours.