Forex trading strategies are used by successful trader's everywhere. Why? Because a good strategy keeps your trading profitable and consistent. It allows you to build equity over the long-term. A strategy is essentially a collection of rules or guidelines. These help to keep traders on track and keep them doing what has proven to be effective according to their trading plan.
Forex strategies contain information which is designed to eliminate guesswork. Some of this information may include such things as what currency pair to trade, how much capital to allocate to a particular trading system, as well as a central money management criteria. What follows are some of the different types of strategies one may employ.
Many traders have found that long-term Forex trading suits them best. Long-term trading, however, is not for everyone as it requires, or should I say is it typically requires a larger amount of working capital. One reason for this is that longer-term strategies may have larger drawdowns and that makes a huge difference in the required amount of capital. One of the best advantages of long-term trades is that they don't have to be monitored once you've placed your initial order as well as your contingency orders. Long-term trades also can catch huge trends and take advantage of the momentum the Forex market can provide during some of its volatile moves. This translates into huge profits per contract which can make long-term trading extremely profitable.
Most new traders are very attracted to short-term trading. There are a number of reasons for this, but the need to see faster results may certainly be one of them. A short-term trader is looking to make many smaller profits with more frequency than the long-term trader. The objective here is to stack the small profits on top of one another in a consistent fashion in order to build equity. If you are interested in this type of trading then you should be aware that it requires more attention than long-term trading and you also have many more transaction costs simply because the frequency of your trading has increased.
Scalping is a trading method used by many and it is that the extreme of all short-term trading techniques. Scalpers may seek to only take 1 to 10 pips out of every trade in hopes that they can accumulate many small profits in order to build equity. One thing is for certain and that is that scalping techniques leave a lot less room for error than longer-term techniques. It's also quite obvious to all of us that there will be many more transaction costs involved and that the transaction costs themselves will be a larger percentage of each profit than we would see in a longer-term method.
Whichever Forex trading strategy you use it is important to make certain that it has been thoroughly researched so that you are confident in its future ability to generate profits. The creation of a good strategy is certainly not the place where you want to skimp on time and effort as this will be the foundation of your successful Forex trading.