Forex Trading Strategies Are Crucial For Trading Success
If you’ve come here looking for a golden trading strategy that will propel you to currency trading greatness, you’ve come to the wrong place. There are plenty of blogs and websites out there promising vast riches from trading Forex.
They’ll use fancy jargon, talk up their crazy charting strategies and by the time they start using words such as “blade runner” or “Fibonacci” you would have all but zoned out. Before you even start exploring charting techniques you need a clear plan of action and below outlines some principle, forex trading strategies to live by.
1. Have A Game Plan
Perhaps the most common mistake forex traders, or any day trader for that matter makes, is that they have no clear approach. The cardinal rule of trading is to make sure you have a list of defined forex trading strategies BEFORE you make your first trade.
Forex trading in Australia is extremely appealing. The market is a 24 hour a day market and you are free to both long and short a stock using significant leverage to amplify your gains. Many are attracted to currency trading by the promises of building huge fortunes. They are eager to prove themselves by making a killing overnight. However, these people are usually the first to lose a fortune. Entering currency markets with the simple goal of making millions is NOT a sound strategy. Many learn the hard way but if you accept some home truths about the Forex industry and plan a roadmap accordingly, you have more chance of success than most.
2. Why Are You Buying/Selling This Currency Pair?
Before trading a currency pair you need a solid reason. Why did you choose this particular pair over another? Do you believe this currency will appreciate in relation to the base? Do you think it will drop and you’ve decided to short it to make money on the downside?
Plenty of traders get burnt because they haven’t devised forex trading strategies based on the currencies they plan on buying or selling. Don’t long or short a currency pair just for the sake of it. Try to understand what is happening to these currencies and why before you enter a position. Whether you source fundamental or technical information (or both) about a pairing, make sure it makes sense to you. Your forex trading strategies should also only concentrate on a few, major pairs. It is ill-advised to trade risky and less liquid exotic pairs as this is a sure fire way to lose money.
3. Why Do You Want To Trade This Currency Pair Right Now
So you’ve decided which types of currency pairs to trade and have solid reasons backing your Forex trading strategies. However, when are you going short or long these pairings? Are you going to buy and sell right away or are you going to time your entry or exit with a market announcement such as an economic news release?
In Forex trading, timing is everything and needs to be decided upon before you commence trading. For example are you going to day trade a particular currency pair and enter and exit the pair numerous times throughout the trading day or are you going to hold them for a while? The amount of time you have available to trade will also have some sort of effect on your Forex trading strategies.
4. How Much Money Do You Want To Make From Trading Forex?
Another question traders wanting to trade currency markets need to ask themselves is how much money do you want to make and how much are you prepared to lose if things go badly?
Traders need to have clear Forex trading strategies around their profit targets and stop loss limits. Much like gambling, traders can plunder their profits by holding out too long. Conversely, from time to time traders will also let their losses run thinking prices may turn around and improve their positions. It is incredibly important to trade with discipline and learn to accept that sometimes your Forex trading strategies may be plain wrong.
New traders often get caught up in unrealistic profit targets. In general aim for a 20% gain in your first year. However, as a newbie, breaking even is an admirable target. Don’t be disheartened; the wealth of knowledge gained will hold you in good stead moving forward.
5. What Are You Doing To Protect Your Trades?
We touched on this slightly above, but traders also need to have clear Forex trading strategies around protecting their capital. Market forces can move against you unexpectedly and at any moment.
Stop losses and guaranteed stops can help minimise losses from adverse price movements by stipulating the lowest possible price you’d expect to sell a currency pair. Furthermore, guaranteed stops provide an absolute sale price and eradicates the risk slippage can have on a trade. Place your stop losses as soon as you commence trading to help you avoid sustaining significant losses.
6. How To Manage Your Funds
One of the most important aspects of Forex trading is acknowledging that at certain points in time you WILL sustain some losses. Not even the most advanced traders get their Forex trading strategies 100% right all the time and they will often factor in the risk of loss into each trade. In general, experienced traders risk up to 5% of their account balance on each trade.
While this may look quite low, only risking a small portion of your capital on each trade will without doubt help you avoid significant loss. It will also help ensure a positive average profit to average loss ratio which will keep you trading Forex long term.
7. Record and Document All Your Trades
The final tip we’ll give you is to ensure you keep tabs on those Forex trading strategies that were successful and those that were less so. Keeping a detailed record of your exact trades will help you uncover exactly which strategies worked. Many traders compile a comprehensive list of their successful strategies and proceed to develop their own Expert Advisors or algorithms designed to execute their successful trading strategies at high speed and with little intervention. While some coding ability is often required here, successful Forex trading strategies are highly marketable and many a Forex trader has made money from selling their tactics.
Do you want to manage Risk?
If you are new to trading, risk-averse or trading volatile market conditionas you may wish to use risk management strategies to help minimise your losses. Risk Management does mean higher costs when it comes to spreads but it is a sound money management techniques when you buy and sell currency pairs. Types of risk management tools include guaranteed stop loss, guaranteed stops, dealCancellation, price level change alerts and trailing stops. guaranteed minimum account balance or no negative Account balance. These tools will ensure that your investment does not result in more losses than you might otherwise experience. Risk management is about considering the risk reward ratio and assessing if the risk is worth managing.
In summary, the list put together above is preliminary only. Much more knowledge is required to trade Forex effectively and successfully. However, it is hoped that after reading through some of the key principles above, new traders will develop discipline and the requisite proficiency to go on and make money trading currency.