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  • When trading, it is important to have a strategy that works for you while bringing you profits. Strategies can help to define your goals and desired outcomes, ensuring that you are moving in the right direction.

    There are many trading strategies you can adopt, and it is not practical to go through them one at a time. Rather, here are some key things you can focus on while choosing a trading strategy.

    Time

    When choosing a strategy, you should consider how much time you have first. While there are various forex trading strategies that will need you to sit at your desk watching charts for hours, including those developed for day trading and scalping, there are also others that are not as time consuming.

    If you belong to the latter group of people, look for trading strategies with longer timeframes. These strategies can allow you to set alerts in advance for key entry points, allowing you to trade according to the markets from time to time, rather than doing so every day.

    The markets will not wait, so it is important to find a strategy that fits your schedule to risk any potential disappointments in the long run.

    Character Traits

    As success in trading is very reliant on psychological strength, finding a forex trading strategy that fits your personality is important

    If you find a particular trading strategy uncomfortable for you, this may result in mistakes and profit losses.

    Think about your character traits and try out various strategies to see which strategy suits you and your needs best. If you can make quick decisions, search for strategies with shorter timeframes, such as those created for day trading or scalping.

    Alternatively, if you have patience but lack quick decision making, look into strategies developed for swing trading or positional trading.

    Once you find a trading strategy that fits your personality, forex trading will be much easier for you. Remember to not neglect this factor whilst deciding on a particular strategy.

    Risk Tolerance

    While some forex trading strategies are risky (offering potentially high returns), others are more conservative. To avoid setting yourself up for trouble, your forex trading strategy should match your level of risk tolerance.

    Know more about your risk tolerance through your psychological traits and financial position. Are you more conservative or risky? Are you able to afford material losses to gain big profits? These questions can help provide you with a better idea on your risk tolerance and how much you are willing to lose to receive profits.

    Choose a more conservative strategy if you plan to supplement your current income with trading. On the other hand, if you want to grow your account aggressively and have other income streams, you can consider a strategy that involves bigger drawdowns.

    If the risk of your forex trading strategy exceeds your risk tolerance level, it can lead to poor results as you may not be able to execute the strategy effectively. Thus, it is important to align your forex trading strategy with your financial goals for success in trading.

    Market Direction

    Trending market and ranging market are two basic types of market behaviour. Look into these market behaviours and evaluate them before deciding on your forex trading strategy.

    Be careful not to use a strategy that works in a trending market when the market is in the range. For example, strategies based on breakouts will fail in a true ranging market due to false breakouts.

    Similarly, purchasing at support levels or selling at resistant levels will fail in a trending market as these levels may get breached.

    Before picking a strategy, learn the difference between a trending market and a ranging market. It is ideal to have strategies for each of these market behaviours, and to be ready for when either.

    Past Performances of Strategies

    The past performance of certain strategies is not a guarantee of future results as although they may work in the past, they may not work in current and future market environments.

    At the same time, it does not mean that you should not cancel out past forex trading strategies that you have used.

    Identifying the current type of market, selecting the appropriate forex trading strategy, and looking at market trends from the past weeks, are a great starting point to help you pick your strategy.

    If you notice a strategy that shows positive results, look into using it in real trading. Alternatively, if your analysis does not show your strategy working, search for a better performing strategy to increase your chances of success.

    Final Thoughts

    Now that you know the main factors to consider when choosing a forex trading strategy, you can start looking through strategies that work best for you.

    When choosing a strategy, it is important to stay realistic — there is no need to rush, as it may not result in ideal outcomes. Take time to carefully evaluate your goals, understand how much time you can spend on trading, your current trading preferences, and the current state of the market.

    It will be beneficial for you to prepare various strategies for different market conditions — have a good plan for both a trending and ranging market, as either can become a possibility. Ideally, several strategies for each type of market can be helpful as it will allow you to switch between strategies, especially if one is not performing to your expectations.

    Keep in mind that any strategy needs time to perform in the current market condition. Be patient and give each strategy ample time, before changing it up.

    Do everything correctly and you will have gathered a set of forex trading strategies that can be tweaked to suit your needs.

    Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our < href="https://www.forex4you.com.ng/risk-disclosure/">Risk Disclosure.

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