3 Bad Forex Strategies

When you begin to trade in the Forex market, you are advised to have a proper strategy recorded on paper before you begin the actual trading. There are some strategies that sound very good when put down on paper but prove to be a bad decision when you execute them. Given below are three such Forex strategies that you must shrink from, when it comes to their practical implementation:

• Moving Average Crossover Strategy:

This strategy is similar to the moving average strategy with a difference that there are 2 or more averages that crossover, signaling momentum change. It is not worth the time and risk because you have to be able to take many losses before you get a single win. The human psyche is such that it cannot take in a single loss with ease and too many losses is out of the question.

The moving average crossover works on the basis that a moving average will cut across the other and signal a momentum change. The trouble with this is that once you enter a trade, you are unable to exit until the crossover reverses, meanwhile resulting in a number of losses.

• Martingale Strategy

This is another toxic strategy that works of the belief of gradually increasing the size of your position till you get a good trade. This strategy has found popularity in Las Vegas but for an ordinary trader, who is not a gambler, the strategy is not at all sound. The assumption is that you begin with risking a small percentage say 1%, on the first trade and keep on increasing it slowly till you get a very good trade. The strategy can go both ways i.e. you can win or you can lose. If it is a loss, then it is hard to absorb.

• Black Box Strategy

This form of strategy depends upon the black box or the computer to do the trading for you. It works on mathematical calculations that do not take “Black Swan Events” into account. Since it is an automated system of trading, the computer continues with the trade even when events signify that it should be closed. It has resulted in massive losses for companies in the past and in one case, The Reserve Bank of New York had to rescue the company so that there was not serious world financial crisis.

Conclusion

These are strategies by using which you are setting yourself up for a loss or a series of losses. Trading requires focus and constant monitoring. You can be a successful trader by resorting to shortcuts. So look for reliable strategies that will help you stay afloat.