Forex Trading Strategies For Beginners


Which is the best Forex trading strategy to use ?  The problem that those that wish to learn to trade Forex have is that there are  literally thousands upon thousands in of trading strategies to choose from. However they fall into just a few main categories with respect to the underlying concept that they use. So whilst there are many individual trading strategies there are relatively few concepts that have consistently proved to make traders money over the years. Those Forex trading strategies that have proven historical track records are clearly the ones to look at first. If you are looking at algorithmic trading systems then because of their nature it is relatively easy to demand their results histories to verify performance – and you should do exactly that.   Probably the two most popular trading concepts are the concepts of breakout trading and bounce trading or mean reversion trading. With most beginners that want to learn Forex trading or learn to trade in general the jury is out between the two concepts. For professional traders the decision is much more clean cut. Breakout trading has a much longer historically proven track record of working and is easier to apply than trading bounces. Those that are learning to trade tend to prefer bounce trades because it sounds quite logical and also most of the strategies being published tend to use quite tight stop losses which again seem sensible, cautious and appealing. We at pro-trader specialise in trading mechanical trading strategies using fully automated algorithmic trading systems. Using these types of methods gives you a big advantage as you can test all sorts of Forex trading strategies and E-mini trading strategies and get precise quantifiable results. One of the key lessons we learn from algorithmic trading is that the few “long tail” winners are absolutely critical to system performance. In English this means that if you remove say the best the 5% of winning trades (i.e. the 5% biggest winners) most trading strategies would just be breakeven. In other words those few really big winners that we very occasionally manage to catch are critically important to our trading success. So what has  this got to do with breakout trading or mean reversion trading. Well most  breakout trading strategies are designed to catch the big trends i.e. we are trading the breakout in anticipation a price continuing to move in the direction of the breakout for some time to come. 

This means that breakout trading strategies will, in general, always catch the big trending moves and hence bag the occasional few big winners. The long tails of the statistical distribution as they are known. Bounce traders are typically going for much smaller profits. They are buying the bounce off of a support or resistance level and then covering the position in anticipation of the bounce off of the next level up or down. This means that by definition they are cutting short those occasional few big winners - which we know are critically important to trading success. Bounce traders will have higher winning percentages but lower average trade profits and almost always miss out on the few really big winning trades that may occur only two or three times every year but are so important to annual profits. So sure by all means in terms of Forex trading strategies look at both breakouts and bounces but understand most bounce traders are running to stand still because they rarely benefit from those really big trending moves. Look at the big hedge funds most of their results come from breakout trading strategies.







Location: London, UK

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