Learn to Run a Short Term Forex Trading Strategy
Short-term forex trading strategies can be very profitable, but also have a high level of risk. In this case, it is not the magnitude of the potential loss, but because losses can occur within minutes to one day. Unlike the long-term strategy, where a trader can be more relaxed, short-term trading requires a higher level of concentration. To be successful, you must understand and truly understand the risk-reward ratio in each transaction, in more detail than long-term trading. You are not only required to be able to detect every opportunity that arises, but also must be able to prepare yourself to face sudden changes in price movements. For this reason, this time we will learn about the basics of recognizing opportunities and how to use them.
There are some basic concepts that you must understand – and of course master – to be able to do short-term trading. Come on, we review one by one.
By recognizing potential, you will be able to find out what you can take and which to avoid. Often traders are stuck in an unfavorable situation because they previously thought that only by utilizing economic data releases would they be able to record fantastic profits.
In fact, when we read certain economic data, the market has first absorbed the news / data and often has reacted just before the data was released. Therefore we must be able to look for clues when exactly we have to open and close positions. For that, there are steps that must be followed.
The first time you have to recognize an ongoing trend. If you see an ongoing trend is an uptrend, then you should look for buying opportunities. Conversely, if the market is in a downtrend, you should look for selling opportunities. This is very important.
Limiting risk is one of the most important aspects that determines the success or failure of the strategy that you run when you trade forex . It is very important to minimize risk and maximize profits. Therefore, the use of stop-loss is absolutely necessary to protect your position from extreme and sudden market changes. There are many techniques for placing these stop-loss , but it is generally recommended to limit your risk to no more than 10% of your capital each time you make a transaction.
Engage in technical analysis
Admittedly or not, the market always reacts to news, data, to any rumors circulating. This reaction can be seen from rising or falling prices. That means all information – whether it is inflation data, monetary policy issues, or political issues – naturally “melts” into price movement behavior.
Talking about recognizing opportunities through price movements means that you need the involvement of technical analysis. Inevitably, you have to study technical analysis more deeply. In forex trading strategies – especially short term – technical analysis is a very important tool.
What should you know at least, related to technical analysis? Here I try to review.
There are several indicators that you can use to determine when to open a buy or sell position.
The thing that needs to be emphasized is that both technical indicators only give instructions in the form of: overbought and oversold conditions , as well as buy and sell signals. Both indicators are not a benchmark for the trend, as most traders misunderstand.
Therefore, make sure the signal that emerges from these two indicators is a signal that is in line with the trend. So, if you want to open a buy position, then as a trading strategy you must confirm that buy signals appear on the stochastic and CCI when the price is in an uptrend.Conversely, sell signals that can be considered valid are sell signals that appear during a downtrend. That is the rule of using indicators in forex trading .
Aside from indicators, price movement patterns – commonly called price patterns – have long been proven to provide clues to the potential for further market movements. Although not 100% accurate (the accuracy is “only” around 70%), but we know that a combination of good risk management can provide satisfactory results.
You don’t need to memorize all types of patterns . Just recognize some of the popular patterns , such as head and shoulders , triangle , double top and double bottom .
Keep it simple!
Keep analyzing with methods that are as simple as possible. Remember, short-term trading takes advantage of opportunities in the shortest possible time. If your analysis method is complicated, it will automatically take time to confirm the opportunities that arise. Chances are likely to be missed.
In addition, the more complicated your method is, the more weight your brain receives. Even though, in forex trading , you have to relax as much as possible. Learn to make a simple forex strategy .
Short-term trading can use several methods of analysis, but the most important thing is that you must understand what to use and when to use it. If you really understand it, you will still be able to look for opportunities and use them as optimally as possible in any market situation.
I remind you a lot: use your capital wisely and discipline in your trading plan. Limit risk, use stop loss, don’t over-trade . If you break all that, then short-term trading will not give you anything, except disaster.