The short answer will be no. There simply isn’t a 100% winning strategy in forex. What works in a specific market at a specific moment may not be replicated or repeated to bring the same results.
Trading forex is risky and complicated, and no strategy can guarantee consistent profits. Successful forex traders are those who tend to have a good understanding of the market, good risk management skills, and the ability to adapt to changing market conditions.
A wise trader is also one who will approach Forex with caution and who is wary of any claims that promise guaranteed profits.
Complexity of the forex market
The forex market is very complex and is influenced by a wide range of factors, such as economic indicators, geopolitical events, and market sentiment.
These factors can very suddenly and unpredictably move currency prices, making it extremely difficult to have a strategy that will help you make guaranteed profits.
The trading environment has also become much more complex due to the increased number of execution methods and trading platforms.
Primary market
The forex market, with its variety of online brokers and trading platforms, is a relatively recent phenomenon. In the late 1990s, two electronic brokers, Reuters (now Refinitiv) and Electronic Broking Services (EBS), became the main sources of price discovery in the interdealer market, becoming known as the “primary market.”
By the early 2000s, we started seeing the emergence of the first electronic multi-dealer platforms in the dealer-to-customer market, allowing traders to submit a quote request (RFQ) to multiple counterparties.
Around the same time, banks also began to offer commercial platforms, allowing for direct electronic trade with clients. Since then, trading platforms have become widespread, with almost 60% of trading now being conducted online, which has more than doubled since 1998, when trades were performed by telephone.
Forex strategy: Market risks
With so many trading platforms, the primary market has declined in trading volume in the past decade and is no longer the main source of price discovery. Bigger market participants are now able to consider many trading platforms when assessing the current level of each exchange rate, while the futures market has also become central to price discovery in the spot FX market. The increasingly complex nature of the market has led to an increase in the information advantage of more powerful and sophisticated market participants, who have more resources to assess each exchange rate with high frequency.
While bigger players have the advantage of more resources and better, faster technology, the online space has made it much more difficult for smaller players and retail traders who don’t have access to more advanced, faster technologies and sophisticated platforms. Indeed, electronification may reduce transaction costs, but for smaller players, it has become more difficult to compete with the big guns.
To address this issue, some FX trading platforms have established constraints on transactions, while others offer options to exclude transacting with the fastest traders.
“Winning” Forex strategies
What makes certain FX trading strategies more popular or successful is that they are well-suited to your trading style and preferences. Three elements tend to stand out when choosing a trading strategy: timeframe, trading opportunities, and position size.
Timeframe
Good traders tend to focus on choosing the right timeframe that suits their trading style. For example, it is very different trading on a 15-minute chart and a weekly chart. If you want to be a scalper and explore smaller market moves, then you should focus on the lower timeframes, which range from 1-min to 15-min charts.
Swing traders may use a 4-hour chart, or a daily chart to go after potentially profitable trading opportunities. So, before you select your preferred trading strategy, it is important to know how long you want to pursue a trade.
How often should you go after trading opportunities?
When selecting your strategy, you should know how frequently you want to open positions. If you want to open many positions, you should focus on a scalping trading strategy. But if you want to spend more time and resources on researching and analyzing macroeconomic reports and fundamental factors, then you should go for a trading strategy that focuses on higher time frames and bigger positions.
Position size
Great trading strategies require you to know how big or how small you will go. How much do you want to risk? Are you a risk taker or a more calculated trader? Risking more than you can is very challenging and can lead to bigger losses. This is why you should set a risk limit for each trade. The wider rule is setting a 1% limit on a trade, so you never risk more than your account on a single trade.
When it comes to successful trading strategies, three come to mind: forex scalping (which focuses on smaller market movements), day trading (which focuses on one trading day and is mainly used in forex), and position trading (a long-term strategy primarily focused on fundamental factors). Picking any of these strategies based on your lifestyle and preferences will help you explore the forex market confidently. Profits are not guaranteed, and losses are part of the game. Keeping an open mind will help you get to the next level.
The strength and future of the forex market
While there aren’t any winning strategies that you can follow blindly and make guaranteed profits, this doesn’t mean that the game is rigged or the forex market is not transparent. On the contrary, the significance of the forex market is huge, and the many successful traders attest to the limitless possibilities that lie within for those who are patient and persistent. It is noteworthy that many have argued that the integrity, efficiency, and strength of the FX market has helped support the global economy, provided financial stability, and cultivated the public’s trust in the financial system.
The global FX market continues to evolve, and many innovations and developments have helped make it more democratic and available to all. Traditional bank dealers are now challenged by non-bank participants, while the speed with which FX transactions are settled is set to increase even more.
Although many FX transactions are settled on the second business day after a trade (T+2), it has been noted that efforts are underway to move this to the next business day (T+1), matching the move to T+1 for US securities planned for mid-2024. This transition may be challenging when a forex trade involves two countries with wide time zone differences.
Strategy: Continue to develop your skills in forex
Successful forex trading is based on skill, knowledge, experience, and effective risk management. While you can create and adjust your trading plan and explore different strategies, investing considerable time in developing your skills is also a must. Traders may use different strategies and techniques to analyze the market, identify potential trade setups, and manage their positions. However, you should always be aware that even the most successful traders experience losses at times. So, it is not your fault if you experience disappointment. Cultivate the right mindset and remain focused. You will get there in the end.
Don’t be fooled by magical profits
Just like any other community, the forex trading community is not without its faults, and many will make false promises. It’s important to remain skeptical of any claims that promise guaranteed profits or a perfect trading strategy. Trading involves risk, and losses are an inescapable part of the process. It is important to know that you will make mistakes and to be realistic about what you expect from forex trading. Quick profits are hard to come by, and depending on luck is the biggest mistake you can make. Continue to develop a sound trading plan and improve your skills, because these are things you can depend on for your success.
Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked in this communication.
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