Effective Forex Trading Strategies

Effective Forex Trading Strategies

Forex Trading Strategies

When it comes to any endeavour involving your money, it is important to have a clear strategy in place before you spend anything. This will give you clear cut principles that will make it easier to make important decisions down the line, especially when you do not have much time to assess and opportunity.

Forex trading is no exception. With the many factors that can affect a trade, as well as the many issues that can come up at a moment’s notice, you want to have a strategy to maximize your profits and minimize your losses.

What you need to consider

In choosing a strategy, it is important to understand and consider how to best use your position, assess risks, and know when to get out of a trade. It is also important to consider your goals when it comes to your trades, how much you are willing to lose before you get out, and how much time you can commit to trading.

For instance, some traders are able to spend several hours each day trading. Others only have one or two hours each week. Some do not have a set time at all, instead choosing to have a device constantly online, so they can trade any time of day, even when on the go. Different traders need different strategies. A part-time trader will need a significantly different strategy from a full-time trader.

It is also important to pick a strategy that fits your personality. While you may know about all sorts of strategies that work for other personalities, they may not necessarily work for you. Forcing the strategy designed for someone of a different disposition from yours is flirting with disaster.

Unfortunately, the only sure way to develop a winning strategy is through trial and error.

Two Major Forex Strategies

In order to figure out the best strategy to take, you have to understand the highest highs and lowest lows of a particular Forex pair. This means you analyze the trends that dictate the movement of the market.

This results in two major strategies: trend-following and counter-trend trading.

Trend-following is all about buying and selling when you think the particular currency pair is about to change direction, either going down after climbing or going up after falling. Using this strategy means knowing when the value is about to change.

Trend-following demands a lot of a person psychologically, as markets tend to be volatile and trends are not always followed.

On the other hand, counter-trend trading assumes that the path the currency pair is taking will continue for some more time. This is good for building the confidence of the trader, as it should have a high success ratio.

Forex Strategies for Part-Time Traders

Both of the two major strategies are best suited for full-time traders or, at least, traders who can constantly check on their trades in order to adjust according to sudden fluctuations in the market. If you are a part-time trader, then you might need to take extra measures in order to ensure that your trades are successful.

The first important strategy here is to make use of stop-loss orders. This means relying on a machine to trade for you to a certain extent. You still make decisions on what currency pairs to trade in. However, you also program the computer to stop your trade as soon as it goes below a certain threshold. This means that, while you are closing the door to the possibility that the trend suddenly reverses and you gain again, you also minimize your losses, making sure that you do not lose too much. This requires you to know just how much you are willing to lose.

Another important strategy is to understand your time zones. If you only have one or two hours to trade per day, then know which markets are most active during those hours, and more importantly, which currency pairs are frequently traded in those markets.

If you are the kind that can only trade once every few days, then you may want to study the long-term trends in the market first, as short-term trends will not be as useful for someone who cannot personally adjust their trades at a moment’s notice.

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