Here are many forex trading strategies with which to approach the currency market. It is important that you find something to suit your personality, as well as your schedule and available capital. The foreign exchange market sees over $3 trillion change hands daily – the majority of this is done by the banks, with a very small percentage accounted for by retail traders.
To succeed in forex, you don’t need an economics degree or be able to write your own software. Various forex trading strategies will allow ordinary people to profit from the market on a regular basis – if one knows where to look.
There are many forex trading strategies you can use to take on the market. Some people prefer to trade short-term; others prefer long-term trading. Whatever style you prefer, successful forex trading strategies require a specific plan as well as the necessary discipline to stick to it. This article will detail some of the points you need to keep in mind.
1. Forex trading strategies can be based on technical or fundamental analysis. Whatever plan you create, it should be relatively simple to follow and require a minimum amount of interpretation. You shouldn't have to twist your analysis to suit your trading plan.
2. Any strategy you choose to employ should take into account the current market trend and find a way for you to either enter at a good price or locate a probable reversal point. Never place a trade against a trend in full swing.
3. Support and resistance are terms you've probably heard and can be used in a number of ways in your strategy. These can be seen in places the price noticeably stalls going up or down, and can be suitable profit targets for a trend as well as possible reversal points.
4. Money management is important to any trading strategy. This means that you should only invest a small percentage at any one time, and if you do have occasional losses don't feel that you have to chase them. If you know your strategy has a success rate of around 70% then there is no need to deviate from it as staying disciplined will keep you in profit for the long-term.
5. Many people trade around news releases - and for good reason. By being in the market at these times you guarantee you are in at a time it is moving, and greatly increase your chance of making money.
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* Currency pair – currencies on the foreign exchange market are always traded in pairs. Some of the most commonly traded pairs are the AUD/USD, EUR/USD, GBP/USD, USD/CAD, USD/CHF and USD/JPY. The first currency in any given pair is measured against the second. For example, with the AUD/USD a measurement of 0.7853 means the AUD buys 0.7853 USD.
* PIPs – short for “percentage index points”, this is simply the unit of measurement used for a currency pair’s movement up or down.
* Units – used to describe the amount of money controlled on the foreign exchange market in any given trade. 10,000 units means you are buying or selling $10,000 worth of currency depending on your chosen action.
* Leverage – this is a feature offered by online trading platforms that allows you to trade with more money than is actually in your account. For example, a leverage of 100:1 allows you to trade 10,000 units with $100.
* Margin – the minimum amount required to place a trade. If your account balance falls below this amount any active trades will automatically close – this is called a “margin call”.
* Stop Loss – an amount you can – and should always – set to limit the amount a trade can move against you.
* Take Profit – an amount you can set to automatically close a trade out when it reaches your desired profit level.
Be sure you understand these terms, in particular the relationships between pips, units, leverage and margin. A properly funded account is recommended to provide you the most trading flexibility, though if you have only a small starting capital it is important to know how much you can trade with.
In regards to units and pips, as a general rule each 10,000 units you trade will cause each pip to be worth an extra $1. For example, if you place a buy trade for 10,000 units and the price goes up 25 pips you earn $25. If you had instead placed the trade for 200,000 units and the price went up the same amount you would have earned $500. This does work both ways, however, and had the price gone down instead you would have lost the same amount.
To demonstrate the above terms fully, let’s say you open an account that provides a leverage of 200:1 (0.5% margin) and make a deposit of $100. To open a trade for 10,000 units, you would only need $50 ($10,000 x 0.5% = $50) instead of having to provide the full $10,000. Though, if a position moved against you more than 50 pips (at $1/ pip) you would receive a margin call and your position would be automatically closed since there is not enough left in the account to cover the trade.
If you decided to trade 20,000 units instead with the same account balance you would have to utilize a leverage of 400:1 (0.25% margin). You still need the same margin of $50, though since each pip is now worth $2 it will only take a move of 25 pips (a small thing, as you will soon learn) against you before a margin call forces the position to automatically close
Once you decide to trade with real money, you can take on the market with a forex trading strategy of your own
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