The definition of religion is; an object, practice, cause, or activity that somebody is completely devoted to or obsessed by. A trader’s strategy is a trader’s religion. In my opinion Mother Theresa is a great role model for all traders because she stuck to her beliefs and nothing could deter her from her path. A trader’s beliefs are formed by strategy and principles that should be religiously practiced, so that nothing can dissuade you from your path to beat the market. I have discussed trading principles in previous articles, now we move on to strategy! First, I will go into the basics of any strategy and lastly I will briefly discuss the most popular trading strategies used by traders.
1. Never think dishonestly.
2. Train every day. (In terms of trading, implies that you must apply and practice your strategy every day.)
3. Become familiar with every art. (Important, because to traders every art is every kind of strategy.)
4. Trust in Forex signals, and test multiple trade alert analysts.
5. Make a distinction between gain and loss in worldly matters. (This applies to cause and effect of sentiment in the market.)
6. Develop intuitive judgement and comprehension for everything.
7. Perceive that which cannot be seen.
8. Always pay attention, even to trifles.
9. Do nothing which is of no use.
1. Breakout Strategies:
This is primarily based on support and resistance lines. This strategy’s name originates from the nature of price action once an asset’s price breaks either a support or resistance line. After the price has passed through the support/resistance what follows is intense volatility and heavy volume to be traded. This strategy ultimately depends on the continuation of the trend for success, and is a frequently used approach by Forex signal providers, trying to give their service a significant edge.
2. Mean Reversion Strategies:
Mean reversion strategies are based on the nature of a stochastic process to always, over the long-run, return to the mean. Traders use this strategy by exploiting temporary extremes in price volatility by betting on the asset’s price returning to its long term mean. This strategy best suits actuaries and Forex signal services with a significant amount of experience.
3. Arbitrage Strategies:
This strategy involves taking advantage of market peculiarities that are extremely difficult to find. The basics of this strategy entail buying a currency costing less in USD per unit and trading it for another that costs even less in USD per unit. This applies to FOREX, in Equities the strategy is known as ADR arbitrage. Arbitrage strategies require information often available only to a couple of privileged players.
Once a trader realizes that all other traders rely on these three strategies in particular, the next thing that trader should realize is that there is no perfect strategy. Breakout strategies are useless in a sideways market. Mean Reversion strategies are ineffective in an intensely trending market and arbitrage strategies become of no use as more and more traders desperately try to take advantage of the rare peculiarities, resulting in these loopholes closing.
Whether you want to utilize Breakout, Mean Reversion, or Arbitrage strategies, you should realize which approach suits your personal trading style before you sign up with a Forex signal service. Email each provider you are interested in, and get them to detail their approach. That way, you know which trading methodology they are subscribing to, so you can make a better decision.
If your signal provider is in line with your trading strategy, then you can easily intervene and make adjustments where you see fit. This will increase your win rate, and help you achieve the gains you are looking for.