More strategies bring more profitable trading opportunities

Is it better to stick to one strategy that a trader has mastered perfectly, or is it better to use multiple approaches so you always have one to go for in today's changing conditions? Well, both ways have something in common and each is suitable for someone else.

In general, a single approach for a single currency pair/commodity/index is recommended more for beginners, for whom it is important to get used to the forex environment itself and to follow the basic rules of money management. For more experienced traders and for those who have the ability to devote more time to forex trading on a daily basis, it may be worthwhile to use multiple approaches and strategies.

Market conditions change frequently, at one time the markets are trending, then there are periods where they simply keep going sideways. In our recent articles, we have described both trend strategies that are suited to markets in a strong trend, as well as strategies where the market is not trending and the price is moving in a range.

Multiple strategies provide consistency

As with traditional investors who allocate their funds to stocks, bonds or commodities, in forex, a trader can create a portfolio of strategies that gives him the opportunity to make money in different markets and under different conditions. For more volatile instruments, such as the very popular DAX index, the trader can go for shorter-term intraday trades or scalping. Other instruments are suitable for traders with a longer-term approach or swing strategies on longer time frames, etc.

When a trader has a variety of strategies that work under different market conditions, the results can be much more consistent. This is because more approaches can provide you with more interesting opportunities and signals. If one strategy offers you about one good opportunity per day, with multiple different approaches, you can be receiving several similarly good signals instead of one. Thus, you do not have to take unnecessary risks and you have the comfort to choose only the really interesting opportunities, which increases the number of potentially profitable trades and long-term consistent results.

Weapon against overtrading

Multiple approaches in forex trading can also protect the trader from unnecessary overtrading. This is because when a trader using a single strategy is not offered enough quality signals by his instrument, he tends to look for entries where he would not normally look.

A good example are traders who use a trend strategy. When the chosen instrument is moving in strong trends, it is no problem to wait for a suitable opportunity and execute a good trade with interesting profit. But at times when the market is moving sideways (and such periods can last for quite a long time), less experienced trend trader tries to find some suitable entry at any price and thus enters into trades that often have no chance of success.

A series of losing trades may lead to frustration and further unnecessary trades in order to reverse the losing streak, but the streak may become longer and the size of the losses even larger. This can then have a negative effect on the trader's psychological well-being. Thus, more diversified approaches can also have a positive effect on the trader from a psychological point of view, as it provides him with plenty of interesting opportunities in different phases of the market.

Correlation and hedging

Even among the currency pairs themselves, we can find those that are influenced by commodities such as the Canadian dollar, the Australian dollar is strongly influenced by economic events in China, etc. An investor who follows multiple currency pairs thus has more opportunities to appreciate his funds during the trading day. Some currency pairs are more correlated, while others move in the opposite direction and the trader can hedge his positions on one pair by opening positions on another, negatively correlated currency pair.

An approach where a trader uses multiple strategies and multiple investment instruments can have many benefits for a forex trader, but it is important to note that it is not suitable for everyone. Novice investors in particular should first try one strategy that suits them and focus on that. Over time, when they find that they are able to test and master other approaches, they can add other tools and new trading styles. However, everything takes time because as we have mentioned several times in the past, forex is not a sprint but a long run.