Every new trader might ask this question. After trying a trading strategy, most of the new traders switch to a new strategy. So, what is the best practice? In the whole section, we will see the answer to why your trading strategy does not work.
02 March, 2020, | AtoZ Markets – An individual trader can call his strategy the best after modifying it to his own needs. Therefore, we can say that your personality will play a significant role in your trading success. You will need to experiment with various methods until you settle with one is required to discover the forex trading strategies that work. On YouTube or websites, you can find examples of trading strategies of earning in the forex market. Most of these strategies are quite successful, but when it comes to practice, a trader sees it as a loss project. Why a forex trading strategy does not work?
Now let’s try to figure it out.
Is it Important to Have a Trading Strategy?
Yes, to start trading in the forex market, you should have a trading strategy that suits your personality. Before discussing further, we need to understand why we need a trading strategy. Additionally, you need to understand what makes one strategy better than others. There are two main reasons behind any forex trading strategy: hedging and speculation.
Speculation based trading strategy is to predict a move that a trading pair is likely to make. Any correct prediction about speculation greatly improves the trading results. However, keep in mind there is a difference between probability-based speculative trading strategy and gambling.
You will probably like every trader, start questioning that you will be a millionaire overnight. First, you will check scalping strategies. Then, you will see that you by no means make steady effects from scalping, the free Forex market Signals, day trading and check indicators and trading tools. Only then you will either build your successful strategy or fail and join the 95% traders that never made any money in Forex trading.
Types of Forex Trading Strategies
There are several types of trading strategies, and you need to choose the suitable one. Successful traders always remain aware of the different strategies to choose the right one based on the current situation.
- Scalping trading strategies are for those traders who love quick profits. Most of the trades are held just for just a few minutes. A scalper can earn profit by beating the difference between the bid and offer spread. Having a tick chart is also a useful method for scalers. To have a tick chart you either need MetaTrader 4 Supreme Edition. You can also download the Custom Tick Chart Indicator for MT4 if you have a classic MT4.
- Day trading strategies – Day traders open and close trades within the same day or trading session. They don’t want to wait overnight for the large moves. For beginner traders, day trading strategy is recommended. Trades may need only a few hours, and price bars are set to one or two minutes. There are several day trading forex strategies that may be suitable for newbies. This type of strategy is also the closest to Halal Forex Trading.
- Swing trading – traders, also call it a trend following trading strategies.
In this trading strategy, the Positions are held for several days. Therefore, traders are aiming to profit from short-term price patterns. A swing trader looks at the bars every half hour or hour.
- Positional trading – These are Long-term trend following. A long-term trader looks at the end of day charts. The best positional trading strategies require patience and discipline. It requires a good amount of knowledge about market fundamentals.
Most of the trading strategies cover the above-mentioned characteristics. You need to choose the right trading strategy for you. It mostly depends on how much time and effort you can give to the forex trading.
Why Your Trading Strategy May Not Work?
There are several reasons why a trading strategy does not meet the expectation of a trader. You need to clarify this before choosing a strategy and starting your career in forex trading.
#1 Technical Reasons
Most of the trading strategies were developed exclusively for making sales. The creator of the trading strategy does not have the task to solve the buyer’s problem. Therefore, in the description of the strategy, the chart and information do not reflect the general reality. Moreover, they present fabricated reports to attract buyers. Moreover, the forex market is the emotion of buyers and sellers as a whole. Therefore, the market is ever-changing with the increase of new technology and human reaction. A trading strategy that is good for today but might not be good for tomorrow.
#2 Incorrect Indicator Settings
Pricing functions of financial instruments rely on different factors and are continuously changing. It is crucial to recognize that the algorithms of maximum indicators had been developed long ago. Since that period, trading volumes of maximum financial assets have increased extensively, which brought about the formation of, so-known as market noise. Therefore, it notably impedes the correct operation of analytical tools. This applies not the simplest to indicators. When trading by support and resistance levels, false breakdowns are determined extra often, below the have an effect on which traders make wrong trading decisions.
#3 Human factor
This is the most common reason for the failure of many new traders. The main reason for failure with a trading strategy is the lack of knowledge. A trader should know the trading strategy well before implementing it to the forex market. Moreover, most of the new traders have a lack of knowledge about trading psychology. Therefore, they don’t know how to minimize risk. As a result, they miss profitable trade and carry the loss trade. On the other hand, there is a certain reason that no strategy can provide 100% accuracy, which needs to be minimized by taking an appropriate risk: reward per trade.
#4 Ignorance of Market Context
Market context is the key to any strategy. A trader should understand the overall market structure to implement the strategy. For example, you can get 1:5 or even 1:10 risk: reward when the market is on a strong impulsive trend. On the other hand, there is a possibility of an extensive false break when the market is on a consolidation. Therefore, your strategy should react to the change in market structure. Any strategy that ignores a part of the market is not a good one.
#5 Ignorance SWOT Analysis
This is another form of technical error of a trading strategy. There is no holy grail in the forex market. No strategy can give you 100% accuracy. Therefore, you should keep in mind that your strategy might have some weaknesses. By identifying the weakness, you can wash the good trades to make money. The forex market is not simple. Therefore, they might see resistance and support to break. Therefore, a good trading strategy always ignores the weaknesses and changes the decision according to market behavior.
You need to know yourself first. What are you expecting from the forex market? If you are willing to take trading as a full-time career, you might have deep knowledge about the forex market with a lot of experience. Moreover, you should follow several rules before choosing a strategy-
- For passing income, swing and position trading are perfect where for full- time trading day trading or scalping is good.
- Make sure to have deep knowledge about a trading strategy without believing blindly.
- Do enough practice in a demo account before proceeding the live trading.
- You should earn the maximum profit when your strategy allows maximum return.
- Always take trades that have a minimum 1:2 risk: reward ratio.
- Trading psychology is key. Without strong trading psychology, now strategy can make you profitable.
Overall, the Forex market is the world’s most liquid market. Therefore, trading in the forex market has several risks that are often called market risk, which cannot be avoided. So make sure to invest the amount that you are ready to lose.
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