Many strategies for trading Forex and CFDs (Contract for Differences) exist. Choosing between one complex trading system and several simple strategies can be challenging for traders. Let’s explore the advantages and disadvantages of each approach and why many experienced traders prefer to use several simple but diversified strategies.
One complex trading system
Advantages:
- In-depth market analysis: A complex system considers many factors and indicators, allowing you to better predict market behavior.
- Automation: If the system is algorithmic, it can be fully automated and minimize the human factor.
- Versatility: A well-developed complex strategy can be applied to different assets and time frames.
- Parameter optimization: The trader can customize the system in detail for specific market conditions.
Disadvantages:
- Complexity of development and use: Developing a complex system requires deep knowledge, time, and skills in programming or working with analytical software.
- Problems with adaptation: Complex systems often need to adapt well to changes in market conditions. Due to the large number of parameters, there is a risk of “overoptimization” when the system works perfectly on historical data but fails with real market changes.
- Emotional pressure: If a complex system fails, a trader can become stressed and lose confidence in the strategy.
- Lack of flexibility: If a complex system is ineffective in certain conditions, the trader has nothing to make up for the losses because everything is based on a single approach.
Several simple trading strategies
Advantages:
- Risk diversification: Using multiple strategies on different assets and timeframes allows you to reduce risks and minimize the impact of one’s system’s losses on the overall result.
- Ease of implementation: Simple strategies are easier to understand, test, and adapt to current market conditions.
- Flexibility: If one strategy stops working, it can be replaced or modified without significant time investment.
- Resilience to market changes: A variety of approaches helps cope with different phases of the market, including trends, flat, high, and low volatility.
- Emotional stability: It is easier psychologically to cope with losses on one strategy if others continue to bring profit.
Disadvantages:
- Need for monitoring: Using multiple strategies requires constant monitoring of their performance and timely adjustments.
- Risk of conflicts between strategies: In certain situations, different strategies may give conflicting signals, which can make decision-making difficult.
- Discipline and management: Managing multiple strategies requires high discipline and good risk management skills.
- Time cost: While each individual strategy is simple, managing a combination of strategies may require more time and effort.
What do experienced traders recommend?
Many experienced forex and CFD traders agree that using a few simple but diversified strategies. Here’s why:
- Risk reduction: If one strategy suffers losses, others can offset them with profits, reducing the likelihood of significant financial losses.
- Adaptability: Different strategies do better under different market conditions. For example, a breakout strategy works in a trend, while a rebound strategy works in a flat market.
- Optimize time and effort: Simple strategies do not require in-depth analysis and can be quickly tested and implemented.
- Learning efficiency: A trader can develop more easily by learning simple strategies and gradually building up his arsenal of trading tools.
Example of a diversified approach
- Strategy for breakout of support and resistance levels.
- Scalping on minute charts using RSI and Moving Average indicators.
- Trend strategy using moving averages on daily charts.
- Counter-trend strategy using Price Action patterns.
Each of these strategies can work on different assets and timeframes, creating a balanced portfolio of trading approaches. But it’s worth remembering backtesting. Every simple strategy must first show results on historical data. Then, it should be properly connected to the risk management rules, and only then can it be implemented in the real market.
The choice between one complex system and several simple strategies depends on a trader’s individual approach and level of experience. However, practice shows that using several very simple strategies distributed over different assets and market conditions gives a more stable and reliable result in the Forex and CFD market. Diversification allows for minimizing risks, adapting to market changes, and increasing trading stability. By the way, a 4-time World Trading Championship winner, Andrea Unger, also used this approach during the tournament, which helped him to be stable for long periods when other traders periodically lost efficiency.
