Identifying a successful Forex trading strategy is an important aspect of currency trading.
Every individual trader needs to find the best Forex trading strategy that suits his trading style, as well as his risk tolerance.
A successful strategy is one with which forex traders can focus on eliminating the losing trades and achieving more winning ones.
Forex trading strategies can be either manual or automated methods for generating trading signals. Manual systems involve forex traders sitting in front of a computer screen, looking for trading signals and interpreting whether to buy or sell. Automated systems involve developing an algorithm that finds trading signals and executes trades on its own. The latter systems take human emotion out of the equation and may improve performance.
Forex traders in the Kenyan market should be careful when purchasing off-the-shelf forex trading strategies since its track record is difficult to verify and many successful trading systems are kept secret.
The three main elements to be taken into consideration are:
- Choosing a time frame that suits your trading style is very important. If you are a trader that aims to benefit from smaller market moves, then you should focus on the lower time frames e.g. from 1-min to 15-min charts. Swing traders will likely use a 4-hour chart, as well as a daily chart, to generate profitable trading opportunities.
- When choosing a strategy, you should decide how frequently you want to open positions. If you are looking to open a higher number of positions, then you should focus on a scalping trading strategy but traders that can spend more time and resources on analysing macroeconomic reports and fundamental factors may spend less time in front of charts.
- Successful trading strategies require you to know your risk sentiment and find the proper trade size. Risking more than you can may lead to bigger losses. It is better to set a risk limit at each trade.
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Three Successful Strategies are:
Scalping
Forex scalping is a popular trading strategy focused on smaller market movements and involves opening a large number of trades in a bid to bring small profits per each. Scalping is popular in Forex due to its liquidity and volatility and investors look for markets where the price action is moving constantly to capitalize on fluctuations in small increments. It requires a lot of time and attention, since you have to constantly analyse charts to find new trading opportunities.
Day Trading
Day trading involves trading currencies in one trading day and is mostly used in Forex. Day traders are mostly using 30-min and 1-hour time frames to generate trading ideas and often base their trading strategies on news.
Position Trading
Position trading is a long-term strategy and primarily focused on fundamental factors. Position traders usually monitor central bank monetary policies, political developments and other fundamental factors to identify cyclical trends and may open just a few trades over an entire year. Profit targets in these trades may be a couple of hundreds pips per each trade.
Conclusion
Kenyan forex traders must find the best Forex trading strategy that suits their trading style, find a preferred time frame, the desired position size and the number of trades they are looking to open.