It’s a well-known fact that only 5% of forex traders are successful, and this is largely to do with strategy. In order to formulate your own forex trading system strategy, you will probably need to do a lot of reading about statistical analysis, and practice several styles of trading on a practice account before you take on some real trades.
Fortunately, there are a number of tried and tested strategies out there that require just a little bit of know-how and common sense to implement, and will generally be successful if you keep your emotions out of play. Any forex trading system strategy is bound to be flawed in certain circumstances – there is an exception to every rule.
Generally a good strategy can be applied to any currency pair, on any market or platform, and will yield reliable buy or sell signals. You can leave it up to a robot to interpret those signals, or you can learn to do it yourself. Most trades are executed by robots, but a human mind can often see signals that a piece of software cannot, so there will always be an argument for a human hand in forex trading.
You can pay hundreds of dollars for collections of strategies for commodity forex online trading, but often you can find simple, tried and tested ones online for free. Here’s an example of a well-known strategy that, if properly applied, should provide a safe and reliable way to invest in forex.
Swing Trading (Overbought/Oversold Trading)
Swing trading is fun, very simply to learn, and requires just a little bit of discipline and some simple tools, which you should find in every commodity trading platform. It is the simple practice of preying on emotional traders’ greed and fear. Doesn’t that sound like fun? Here are a few simple steps. Remember: it takes a few days of practice to get this down tight, so make sure you can do it with regular accuracy before implementing it in a real trading account.
- Identify your currency pair (of course)
- Identify areas of support or resistance, over a time period that is relevant to the length of your trade (if you’re only holding the pair for a day, there’s no point in looking at the year’s support and resistance)
- Identify volatility using Bollinger bands, to help you identify when a breakout is occurring. (you should do some reading and practice this so you’re confident of what all the numbers mean)
- Use the Stochastic (a metric built into all trading platforms) to confirm whether a recent move is a breakout, or simply a move within regular volatility.
- You can either set orders to buy/sell when the pair moves out of support or resistance, or trade it manually
- Set your stop loss and take profit orders
Take profit early – don’t hang on for bigger possible returns – and move on to the next trade.
In isolation, and without practice, you are as likely to lose money on a single trade as you are to make a profit. However, with practice and over a dozen or so trades, you should be able to make a healthy profit without exposing yourself to too much risk.