Recommendations can be found all over the Internet regarding which Forex trading strategies you should use, which ones you shouldn’t, and the reasons for each. However, it’s due time for some tips on forming your own Forex trading strategies or at least, some tips on choosing which suggested strategies might work best for you. Matching some important considerations with different strategies is the key to finding those that you like. The first (and most important) step in becoming successful in the Forex market is to have a plan. Creating trading strategies is actually not difficult, but you must consider the following:
- Why buy or sell? Which pair?
- Timing: Why now? Day or Night trading? Before economic news or after?
- What is the take profit target and stop loss?
- Reason for entering a trade
Don’t ever enter a position because you are bored or because you just want to feel the thrill of being long or short. Only buy or sell on pairs for reasons that make sense to you, whether that reason is technical or fundamental. Think about which currency pairs you will trade. Many recommend that you concentrate on some of the major pairs (EURUSD, USDJPY and GBPUSD, for example).
One of the most important aspects of trading, and probably the most crucial, is money management. Accept the fact that no one can have a 100% winning ratio and also accept that no one is correct 100% of the time. This is critical because you need to learn to identify when you are wrong before your mistake becomes too large. Take a look at how much equity you have to fund your account, and decide how much risk you are willing to take – for most traders, the risk will be anywhere from 1-4% of their account balance on each trade.
Especially when just starting out, you want to avoid big losses! It’s also important to keep a positive ratio of winning vs. losing trades and a positive average profit compared to average loss, too. Think about this for a minute: If your average loss is twice your average profit, you will have to make 10 profitable trades to cover five losing ones.
Look for patterns – you need to always keep track of your past trading and the results so that you are able to recognize past mistakes and look for any patterns that evolve. With these tips for a solid basic start in devising Forex trading strategies, you will be able to walk through the door of trading excitement in the Forex market with a great head start.