In this article we will look at some of the trading strategies which are used such as martingale strategy & basket strategy and how they help traders increase their profit margins.
As per martingale strategy, a forex trader should continuously increase every new trades value after incurring loss. This strategy relies on a theorem according to which in forex trading a person will not lose every time.
In forex market traders decide on long or short trades and then stick to using those trades. If they lose then traders start doubling their trade relying on martingale strategy according to which a win will surely occur.
However for new forex traders it is worth noting that martingale strategy has exponential outcome. As an example if someone invests $15,000 in single mini lots then it can be exhausted within few trades if the trader kept doubling the trades with each consequent loss. It is also to be noted that this type of strategy can only be successful as well as profitable when winning probability is around 0.5.
Forex Basket Strategy
In this strategy orders are placed where every order is a mix of different currency pairs. This technique is primarily utilized by big institutional investors, automated traders plus hedge funds with large sums for investing. Many small investors also take help of this technique to mitigate trading risks. The other benefit of forex baskets is that it helps investors to effectively manage trades they have. To reduce risks, forex brokers create baskets through hedged currencies.
Basket Strategy ֠Jumping Slots
In jumping slots strategy basket is formed with 2 sets, as an example let us assume each set has 5 pairs. These 2 sets have correlated currency pairs making them completely hedged. Now a demo account is used to trade 1st set as long and the other as short trade. Normally, after some days the top 5 slots are occupied by long trades while the short trades occupy bottom 5 slots or the situation is totally opposite with short trades at the top.
The main goal here is to monitor and wait till any one from the 5 trades at the bottom move into one of the top slots. Such a currency pair is consequently traded in the direction in which it is moving through a live account. Normally the trade is closed after demo account reverts back to its lower half in loss/profit table. To properly utilize this technique what you will have to do is spend more time to determine the specifics and also calculate the loss and win ratio.
A Final Note
Thus we can see that there are various techniques and strategies available in forex trading such as martingale and basket strategies. But what is required is proper use of these techniques to improve scope of investment and increase profit levels. A forex trader can reduce his market risks by using the basket technique and make good gains through right utilization of martingale strategy and for all this proper knowledge of the techniques is a must.