Developing a Forex Trading Strategy
An important step for all Forex traders is taking the time to develop a sound trading strategy. This takes time and patience, as well as a lot of trial and error, and no strategy is foolproof. To begin developing a strategy, a number of questions must be addressed, including:
- Risk level. First, a trader must define their risk—they must know whether they are willing to take on a great deal of risk with the hopes of a big reward, or are more comfortable with minimal risk and smaller rewards.
- Trading time. Next, a trader needs to decide how much time they want to devote to Forex trading, and what time of day they will be trading. A trader’s personal life is part of determining a suitable strategy because, for example, a trader who has one hour a day to trade will not be a candidate for a day trading strategy. And the time of day most trading will take place influences the currency pairs traded—for example, a trader who mostly trades after 12AM GMT will more likely benefit from trading Yen pairs since the Asian market session will be underway.
- Currency choice. A trader must also know which currencies they will be trading. Most new traders choose one or two of the major currencies as a start. Narrowing the focus to a select number of currencies greatly enhances a trader’s ability to stay abreast of relevant news and price levels for the chosen currencies.
- Analysis type. Finally, a trader needs to decide whether to use technical or fundamental analysis, or a combination of both. It’s a good idea to become familiar with the elements of both forms of analysis, but realise that it is impossible to become an expert overnight. Focusing on one technical indicator at a time, or one economic report, can help build confidence and proficiency.
Regardless of the strategy they ultimately formulate, traders who have a plan usually enhance the likelihood of success more so than traders who dive in blindly.
The FOREX.com Advantage
So traders can safely develop and test strategies in a risk-free environment, FOREX.com offers practice accounts to all traders.
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