How Many Trading Strategies Do You Need to Succeed?

by Justin Bennett  · 

November 17, 2017

by Justin Bennett  · 

November 17, 2017

by Justin Bennett  · 

November 17, 2017


Woman thinking and staring at light bulbs

Happy Friday!

This week’s question comes from Moshood, who asks:

How many trading strategies should I have when trading the Forex market?

There are thousands of trading strategies available to the Forex trader.

In fact, when you account for the infinite number of technical indicators available, the possibilities are limitless.

It’s easy to think that the more strategies you use, the more money you will make.

However, I’ve found the opposite to be true.

You don’t need to use twenty, ten or even five different trading strategies to achieve success. And if you try to learn that many at one time, you’re setting yourself up to struggle.

So how many do you need? Moreover, how many should you learn at one time?

The answer to both of those questions might surprise you. Read on to learn how many strategies you might need and how to go about finding the ‘right’ one. I’ll also share my favorite two strategies that you can begin using today.

Learn One Strategy at a Time

I’m a firm believer in learning one trading strategy at a time.

The issue many traders run into is that they spread themselves too thin. They jump from strategy to strategy without taking the time to learn everything there is to know about one in particular.

This creates two issues.

  1. As mentioned above, you can’t learn all of the intricacies of a strategy without devoting the necessary time and energy. And without that, you aren’t likely to find success with it.
  2. No strategy will make you consistent profits right away. Regardless of how good the strategy is, it’s going to take time to know whether it’s profitable or not.

By limiting yourself to one strategy at a time, you will accelerate the learning process. You also find out whether it’s right for you—and your trading career—that much faster.

When I suggest this, I usually get responses like:

With an infinite number of trading strategies out there, how can I possibly find a profitable one if I’m only learning one at a time?

This introduces an interesting dynamic.

You see, most traders start their search by looking for ‘profitable’ strategies. But the thing is, there’s no such thing as a universally profitable trading strategy.

If I were to try to scalp using someone else’s strategy I would struggle, regardless of how profitable that person is with the same strategy.

That’s because I’m not a scalper. It doesn’t fit with my personality nor does it match my overall approach to the markets.

What conclusion can we draw from that?

Start by identifying what type of strategy you think would match your personality. Only then should you concern yourself with finding one that you determine to be profitable.

For instance, if you feel comfortable with swing trading, pursue various strategies related to that type of trading.

If you find yourself gravitating toward the smaller time frames, scalping strategies might be best for you.

There’s no one size fits all, but by identifying a type of strategy first, you’ll save yourself a ton of time and effort in the long run.

As for how many you need, the answer varies. That said, you really only need one or two to succeed in this business.

All you need is one pattern to make a living.

Linda Raschke

If I Had to Use Just Two Patterns

Although I use several chart patterns and candlestick signals to trade Forex, I do have two favorites.

When it comes to chart patterns, nothing compares to equidistant channels. They occur more often than most traders realize and can produce incredibly lucrative trade setups.

They also illustrate market structures like consolidation. That may not sound too exciting, but periods of consolidation often lead to breakouts.

Here’s an example of an ascending channel that formed on the GBPNZD 4-hour chart:

GBPNZD ascending channel break

Notice the breakout that occurred. That move can be traded in the direction of the prior trend, which in this case resulted in several hundred pips.

As for candlestick patterns, nothing comes close to the pin bar in my opinion. It’s a signal I’ve used for years and has worked better than any other.

What makes the pin bar unique is the long upper or lower wick. It suggests an influx of buying or selling pressure in the area.

When you pair that with a key support or resistance level, it becomes a highly effective candlestick pattern.

Here’s an example of a bullish pin bar that occurred on the NZDJPY daily chart:

Bullish pin bar at support

One thing you can try for maximum effectiveness is to combine channels and pin bars.

For example, when a currency pair breaks a channel and then forms a pin bar (or long-tailed candle) on the retest.

EURGBP ascending channel break with bearish pin bar

So there you have it. If you’re looking for a simple chart pattern and a candlestick formation to compliment it, look no further than channels and pin bars.

Keep in mind, however, that these are my favorite. As mentioned earlier, it’s important that you find a strategy, or set of strategies, that fits your personality.

Final Words

I suggest learning one strategy at a time. If you spread yourself too thin, you won’t be able to devote the necessary time and energy to one strategy to see it through.

If I were forced to use just one chart pattern, it would have to be ascending and descending channels. They often occur on 4-hour, daily and weekly time frames, and can produce incredibly profitable setups.

You can also trade within a channel or use it to identify breakout opportunities. This flexibility makes channels one pattern I couldn’t trade without.

The one candlestick pattern I would choose is the pin bar. Its long upper or lower wick provides insight into where there’s an influx of supply or demand, especially when it occurs at support or resistance.

Use pin bars together with channels and you have a combination that can give you an edge in any market.

Your Turn: Ask Justin Anything

I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

  1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
  2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.

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