Forex trading involves substantial risk of loss and is not suitable for all investors. The best strategy to trade Forex, the international currencies market, is the one that best fits your temperament, personality and trading skill.
Temperament and Time Frame
A key factor in matching your personality with a trading strategy is the main time frame used by a strategy. If you usually seek activities that provide immediate gratification, a strategy based mostly on a four-hour chart will not work for you--even if you see others making money with it. You will be more comfortable trading a strategy that is built around a lower time frame--15, 5 or 1 minute. These time frames demand your constant attention and participation.
Skill Level and Discretion
Another factor to consider in strategy shopping is your current skill level. New traders will likely not be successful with highly discretionary strategies. "Discretionary" means the strategy requires sound trading judgment, based on significant experience. Beginners do not yet have this experience, so they should avoid these strategies.
You do not need much, if any, trading discretion to use a trading "robot"--an automated trading system. These are also sometimes referred to as "Expert Advisers," if your trading platform is Metatrader. If you are considering buying such a resource, seek objective reviews of it first. One place to find such reviews is Forex Peace Army (see link in Resources).
Trade Rooms and Signal Services
Another way for beginning traders to find winning strategies is to join a trade room or signal service. Many services cater to beginning traders by telling them exactly where to place their stop-losses, entries and exits. Do not sign up with a signal service unless it has a consistent record of winning trades. Also, seek a service that provides trading education, as opposed to just signals.
Another approach to finding the ideal strategy for you is to look for one with clear and simple rules for trade entry, exit and management. One such strategy is to place a buy-stop one pip above the previous day's high and a sell-stop one pip below the previous day's low. Set a take profit of 5 pips beyond the entry and a stop loss of 50 pips behind the entry.
Only trade EUR/USD because of the low spread. Note that the risk to reward ratio here is terrible. A little light back testing will show the profit potential of this strategy. As your skills in technical analysis and trading increase, you can refine this method. For other easy-to-learn strategies, see BabyPips.com (see link in Resources).
Creativity
The best trading strategy if you have a creative streak is to "roll your own." Learn about the fundamental tools of technical analysis and, especially, how price action seems to respond to them. These are the tools to learn: Fibonacci levels, moving averages, trend lines, patterns and oscillators. Read just enough about each to let you begin demo trading with it. Study each tool by itself. Carefully log all your observations and questions and review that log regularly.
After you have studied each tool individually, begin combining them. Create your own strategy using the best of each basic tool. Paper and demo trade your strategy for at least 2 months before taking it live.
Source - eHow
