You can’t trade forex without a strategy, as it is going to be your “bible” when it comes to finding success. Creating an effective trading strategy isn’t always the easiest of tasks, as it requires plenty of thought and foresight. Looking at what it takes to both establish and maintain a consistent forex trading strategy, the following information is going to be key:
When embracing forex trading, before you do anything, you are going to need to determine what type of trader you are. Do you enjoy swing trading, or is day trading more your speed? Are you interested in breaking down charts and data, or do you tend to go with the flow? How long do you tend to hold on to positions? How active do you see yourself being? Answering these questions will help you to determine a trading time frame that will make up the basis of your forex trading strategy.
Information is going to fly at you from all directions when you trade forex, as the currency pairs of the world are constantly shifting, but not all advice is good advice, especially when it comes to executing trades. As your forex trading strategy begins to take shape, it’s important that you filter out the advice that is actually going to be detrimental to your output.
You should learn from experienced traders and well-respected forex analysts when putting pen to paper on your strategy. These individuals have seen it and done it within the realm of forex trading, so you should certainly study them when putting together your strategy. While we wouldn’t suggest that you follow them blindly, you can certainly grab several key bits of info that can help to solidify your forex trading efforts.
Plenty of traders can turn a profit from short-term market fluctuations, but when starting out and creating a strategy, it is what takes place over a longer time frame that should take precedence. Short-term data can come with plenty of hype and noise in tow, but it can also cloud the judgement of a novice trader and can’t always be relied upon to determine accurate market predictions.
Technical analysis is largely self-explanatory in execution, as it’s solely based on breaking down the internal forex market factors (such as the number of active buyers and sellers) to determine the likely market direction. However, you simply can’t base a forex trading strategy on these factors; as crazy as it sounds, you need to look beyond the numbers.
The forex market is strongly influenced by what occurs in the real world, as everything from growth figures to interest rate changes can impact currency performance. When formulating a forex strategy, you should carry out extensive fundamental market analysis, understanding what’s ahead when it comes to forex as a result.
It was mentioned above, but it certainly bears repeating. No trader can monitor the market manually 24/7, so in your absence and in the interest of risk management, you should set stops on your open positions. This type of order will automatically commit you to sell when a currency reaches a certain level, in your absence or otherwise. Limiting losses and locking in profits, correctly used stops can plug up any holes within your forex trading strategy and act as an additional level of protection.
After going through all the motions and developing a forex trading strategy, you’ll need to test its effectiveness. As you are new to forex trading, it is certainly ill-advised to do this with real money. By using a demo account, you can put a forex trading strategy through its paces, ironing out any kinks and making modifications along the way. It’s important that you craft your own forex trading strategy, with it meeting your investment needs; by testing it through a dummy environment, you can really mould a base approach into something effective.
With a base forex trading strategy in place, how you can further it is through the use of certain forex trading tools. Coming in a variety of different forms, the right tools really can boost your output to the next level. Ensuring that every trader can have increased control over his or her portfolio, automated trading (via Tradeworks) allows anyone to trade around the clock, with moves being made automatically based upon preset criteria, thus allowing anyone to trade unemotionally based on facts, figures, and statistics.
For those who wish to be nudged in the right direction when it comes to the trades that they make, market indicators (often combined with a signal-based service) will be of use. Alerting subscribers to what is happening within the market, along with certain trends that may (or may not) be unfolding, the right signal service can help you to stay one step ahead of the game. Finally, in order to grasp the true effectiveness of your forex trading strategy, performance tracking (via Chasing Returns) is strongly advised. Allowing you to understand what’s working and what isn’t, through performance tracking, you can see the hard data that will allow you to tweak your forex trading strategy to ensure continued success.