Most beginners enter the forex market starry-eyed with beautiful dreams of making instant high profits and living the life. It is not bad to dream and the nature of the forex market is such that such successes are indeed possible though they are not attained as often as you would think. One very important aspect of forex trading that usually keeps new traders from achieving these dreams is the lack of a trading strategy or plan. Without one, it is almost impossible for one to safeguard their forex trading account, let alone grow it. Creating a strategy is not a highly complicated affair and any trader should be able to do it within a reasonable period of time. For the best, most effective and profitable strategy, you need to consider a few important factors.
Reason for Each Trade
Before making any trade in the forex market, you need to analyze why you want to buy or sell your currency pair at that point. You need to identify which currencies you will be trading and why. Your reasons and decisions should never be due to excitement or boredom but rather, should always be as a result of meticulous analysis.
Choose Currencies Wisely
Your trading strategy should never miss a clearly defined choice of currency pairs to trade in. It is very easy for an excited trader to jump from one pair to the next pair based on rumor and hearsay. A better and more profitable approach would be to start with only one currency pair and master it. It is only after becoming a master trader of one currency pair that a trader should even consider incorporating a second pair into his or her trades.
Personal Trading Style
There is no “one size fits all” when it comes to forex trading strategies. You need to have a plan that suits you and your lifestyle. For instance, you need a strategy that allows you to trade when you are free of other duties. This allows you to focus and make the best informed decisions. You need a strategy that pre-determines when you will trade, how many open positions you will trade, how long you will hold each trade position, or how many times you will trade. Some important factors include deciding on whether to trade before or after economic news that impact on currency prices and the trading session you will trade in.
Define Trade Objectives
Your forex trading strategy needs to clear define your preferred trading end result. For instance, you need to be clear on what your stop loss levels will be for all your trades. Aside from that, you need to define the kind of stops you will be using. Set your take profit levels and trailing stops to enable you maximize your forex profits and avoid losses.
A forex trade strategy is nothing without a well-defined money management plan. You need to manage your forex funds in order to safeguard your account. You also need a money management plan to minimize your losses and maintain them at manageable levels.
Having a trading strategy is a prerequisite for attaining long-term forex profits. A good trading plan will help you manage your account, minimize your losses, and maximize your profits.
Damien Bonn has worked for various brokerage firms since 2008 and in that period has gathered a ton of knowledge and experience in the intricate mechanisms of foreign currency trade. He is also experienced in commodity trading, options trading, and equities.