Hello dear trader, in this article we will look at what strategies really work in forex and how to achieve a positive result of working with them.
The article was written on the basis of 7th experience of trading in financial markets.
Why martingale and averaging are popular in Forex
The most profitable strategies, no matter how they deny it, the supporters of stop losses are grid / averaging strategies with martingale of varying aggressiveness.
Why averaging is best suited for forex trading – the reason is that it is the foreign exchange market, in particular the major global currencies, 95% of the time are in range activity. Range activity means that there is a certain convenient range between buyers and sellers within the fluctuation for which the price suits both parties.
If the currency is too expensive, then export will also be expensive on the international sales market, and if the national currency is very cheap, then imported goods for the country’s economy can be very expensive, respectively.
Thus, the national banks of all countries need to keep a constant balance between exports and imports.
If the currency is too expensive, then export will also be expensive on the international sales market, and if the national currency is very cheap, then imported goods for the country’s economy can be very expensive, respectively.
The main levers of influence on the value of the currency are the regulation of the discount rate parameters, the choice of monetary policy aimed at strengthening / weakening the national currency.
Which currencies should be chosen for averaging and why
Not all currency pairs can be corridor and you should choose exactly those, the size of the corrective movements of which is more than 50-60% of the impulse. That is, we need a price return, an example of the described correction can be seen on the next page. picture
In this picture you can see the EURUSD daily chart with a pullback
Where else can you apply the averaging strategy
You can also average when investing, for example, you have chosen an interesting share / investment asset, bought at 90, the price dropped to 80, you have the opportunity to buy an asset at a more favorable price, while if the price rises in your direction, you will be in plus much earlier. When investing, you need to exit the instrument when you want to change the sector and your analysis of the future perspective of the held asset indicates an exit.
Why Stop Loss Strategies Bring Many Unprofitable Trades in Forex
Strategies with stop loss on Forex bring frequent losses because the market is flat / corridor most of the time, and most traders want to wait for the ratio, and many want to make 3-4 times more profit in relation to the stop.
What is the trader’s mistake here
The most common mistake is using a trending strategy in the flat market, believe me it sounds simple and logical, but 99% do not see this, I myself did not understand before in the first years of trading why using a seemingly profitable strategy does not work.
Therefore, first of all, distinguish between trending and flat assets and, depending on this, choose the type of strategy.
How to limit losses in a strategy with martingale and averaging
From practice, I can say the following, with an average risk of 0.1 lot per 25,000 deposit symbols, if your loss begins to pressure you psychologically, then you should close positions at your predetermined marginal loss. Here you need to build on the following, understand that fundamental events have taken place in the traded instrument and in the long term the asset price will decline, and you are standing long, the second, according to your miscalculation, the price may fall to those boundaries where you no longer have enough deposit to withstand such a drawdown.
Market Law – If things get bad, things get worse.
Also, for psychological control, you can use the Risk Manager, which will close all your positions and cut losses when the set level is reached.
It is very important to have such a tool when using risky strategies with averaging / martingale, if you take risks in advance, then you need to have a tool that, in the event of abnormal volatility, will save your deposit from a complete loss.
Why I wrote this article
Some traders who criticize the approach of using averaging will say why I wrote it. I will answer in the same way from the side of experience, for my 7 years of experience, it was traders who use the averaging approach that repeatedly achieved great success in raising capital and multiplying it multiple times, such strategies showed 1000, and some even several thousand% growth and consistently made a profit for several years …
And investors went, although they know that one day such strategies can give a loss, but since everyone needs money here and now, no one thinks about it, probably this is the reality of forex trading.
Therefore, the last advice that I will give when using dangerous strategies is the constant withdrawal of profit, thereby over time you will be able to recoup the initial investment / initial deposit, and then, again, systematically withdrawing profit, you can already earn. I’ve done this in practice and it really works.
