Successful trading is not an easy job and in a market like foreign exchange one miscalculation can lead to huge amount of losses. But then there are traders and speculators who make a fortune and profits in the same forex market. So what is it that they are doing different? They have a forex trading strategy, which they implement to get ahead of everyone else. Even you can create your own Forex strategy but for that you will need to understand certain key components of forex trading.
The foreign exchange market is comprised of traders, money managers, investors and speculators and all striving towards one goal, how to maximize their profit on investment. So whether you are a trader, investor or speculator, you need to get maximum knowledge about forex trading, about the strong currency pairs, the various market conditions, and the entire process. Once your research is complete, you will be in a better position to formulate the right trading strategy. Here are some of the key areas that will make your strategy strong and help you in making a profit.
The forex trading market is volatile and can change suddenly. These changes however exciting and positive can also incur losses if you are not careful. The first part of our forex trading strategy should be to start with a small investment. Risk is necessary but losing your hard-earned money is not.
Identify market conditions
Your forex strategy should encompass the existing market conditions and the future conditions too. You should look at the current trend, compare it with similar trends from last year or the year before and based on that judge how it will perform in the future. A clear picture is extremely necessary for successful trading.
There are many traders who enter the market without enough knowledge and with a mission to just make money. Of course profit is the most important thing but over and above that as a trader or speculator you need to extrapolate. Extrapolation includes price evolution in a particular period and exit price. Your strategy should include what will be your exit price at any given point of time and also define whether you will be scalping long-term or short-term. If you are trading multiple times in a day, then you don’t require the daily analysis or data, you will require hourly analysis.
A good forex trading strategy should always have a method of limiting risk and at the same time should be able to help you capitalize on the movement of the market. You can limit the risk only if you have knowledge of the market, the currency and fair bit of insight into the future. You can’t expect to make a profit with every trade. It is like a game of chess and you need to know what the next move should be and how it will affect trading.
Last but not the least, when in doubt, don’t trade!