Most people who are new to forex trading don’t realize that having a solid trading strategy is one of the most important factors in achieving success. A good strategy will help you make better decisions about when to buy and sell, as well as how to manage your risk. Without a strategy, it’s very easy to make costly mistakes that can eat into your profits.
What is 5-3-1 Forex Trading Strategy?
The 5-3-1 Forex trading strategy is a simple yet effective strategy that can be used by both novice and experienced traders alike. The strategy involves using five moving averages, three support and resistance levels, and one Fibonacci level. The strategy can be used on any time frame, but is most commonly used on the hourly chart. This time, we are going to break down the 5-3-1 trading strategy.
Five
With the 5-3-1 Trading Strategy, it states that you only have to focus on trading five major currencies which are the EUR/USD, USD/JPY, GBP/USD, USD/CHF, and AUD/USD. When trading these pairs, make sure to base it during the times that they are most traded. As you focus more on these five major pairs, you can gain a god understanding of how these pairs move.
Three
After picking the 5 currency pairs that you will be trading, it’s time to choose the three specific strategies that you should use in trading. As you focus on one trading plan, you must also focus on three strategies for trading. Here are some things to consider when picking a trading strategy:
- Timeframe – What time frame are you trading on? This will determine which indicators you will use.
- Risk appetite – Are you comfortable taking on risk? How much risk are you willing to trade with?
- Trade size – How much are you willing to trade at one time? This will determine how much capital you will need to deploy.
- Trading tools and platforms – Do you have access to the right tools and platforms? Trading tools will help you determine the movement in the market. It will tell you whether you should buy or sell an asset.
One
Those who follow the 5-3-1 strategy only trade in the market once a day. One of the drawbacks of trading in the Forex market is its 24/7 availability. It is true that all-hours trading gives out opportunities for profit and liquidity but it also provides threat when you miss an opportunity to trade.
The best time to trade is when the currency pairs you’ve chosen are most active. The forex market is traditionally separated into three sessions: the New York session, the London session, and the Tokyo session. The most traded currency pairs during each session can be guessed by their names.
Conclusion
Following a 5-3-1 Forex trading strategy can help you make better informed decisions when it comes to currency trading. By focusing on a few major pairs and using specific strategies, you can improve your chances of success.
