Length : 2.30 Minutes
What is a Forex Trading Strategy?
A forex trading strategy is a technique used by a forex trader to determine whether to buy or sell a currency pair at any given time. Forex trading strategies can be based on technical analysis, or fundamental analysis.
Every trader has to have a clear strategy with a set of defined rules and conditions.
Forex trading strategies can be either manual or automated methods for generating trading signals. Manual systems involve a trader entering and executing the trades manually and requires the trader to monitor the trades by sitting in front of a computer screen.
On the other hand, automated systems involve a trader developing an algorithm that finds trading signals and executes trades on its own. The latter systems take human emotion out of the equation and may improve performance.
It is important to know, that an effective trading strategy consists of several parts such as,
1) Entry point (Predefined rules to signal when to buy or sell a particular currency pair)
2) Exit point (Predefined rules to signal when to exit the opened positions, whether be a losing or a winning position)
3) Risk management (predefined rules on the amount of risk that should be taken per each trade, for example the size of each positions, and the acceptable percentage of risk of total capital per trade)
Many traders, only spend time on the entry point and constantly look for a strategy that gives them the key to beating the market consistently. One has to consider, no matter how great one strategy signals entry point, if there are no proper exit rules or no risk management in place, that strategy indeed is a losing strategy in the long run. Thus, it is important to develop a strategy that has clear rules on when to enter, when to exit and how much to risk.
In the next section "Advance", we are going to cover various technical analysis that could help you to build your strategy upon, also we are going to cover risk management, broker types and tips on choosing a good broker. In addition, we will cover what is automated trading and its advantages.