After learning the basics of forex trading the next step for any serious trader is to look for a good forex strategy to trade with. This is where many people get confused, they normally do not know if they should go with any of the short term forex strategies or go with the longer ones. We take a look at each of them in this article.
Short Term Forex Strategies
Short term forex strategies refer to strategies that are used on charts lower than the hourly charts. They are mostly used by full time forex traders.
- They often provide traders with numerous entry strategies within the day. Some strategies pick out as many as 10 trade entries in one trading day.
- With the high number of trade entries given, the trader can make decent profits in very little time.
- The stop loss distance on trades generated in this manner is usually small. This allows the trader to easily trade with bigger lot sizes.
- Since the trades are taken off lower time frames, the trades are usually closed before the end of the end of the trading day thereby removing the uncertainty that comes with having positions open overnight.
- Due to the numerous entry signals received within the day, the trader may often go on a losing streak.
- The trader is exposed to the dangers of intraday trading. This includes being taken out by spikes arising from fundamental releases.
- The strategies only work well during very busy sessions and thus traders living in the Australian time zone may not be able to fully benefit from using this type of strategy.
Long Term Forex strategies
These strategies are designed to be used on the hourly charts to the daily charts. The strategies can also be used on the weekly and monthly charts.
- These strategies allow traders from any time zone to benefit from market movements without any inconvenience or having to alter their activity schedule.
- Traders using these types of strategies are protected from market noise and intraday risks as seen on lower timeframes.
- Traders are able to properly analyse the market without any pressure as trades normally last from 24 hours to weeks.
- These strategy types are not ideal for traders with small capital looking to live off their trading profits. This is because trades taken off the higher charts will require you to use wider stop loss levels. Any trader that is money management conscious will definitely have to scale down on lot size and this reduces the value of profits made.
- The strategy requires a lot of patience especially from full time traders as you can go 3 days or more without getting a trade signal.
Which one is best?
This comes down to what your preferences are but traders using long term strategies and patient enough to grow their accounts rarely crash their trading accounts. However, if you prefer high intensity trading and you are ready to find a mechanism that will help you weed out good signals from the barrage of signals you will receive daily, then you can go with short term strategies.