Forex.com Tutorial

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.

Previous page - Analysing the Forex Market

Next page - Avoiding Trading Mistakes

Disclaimer

Trading Videos

ETX Capital Daily Market Bite, 21.05.13: European Markets Choppy On Fedspeak; Rand Hit

City News

London midday: Stocks pull back as UK retail sales drop

Thu, 1st Jan - * Disappointing retail sales in the UK saw markets pull back from a 13-year highs on Wednesday morning while traders kept a close eye on central banks around the world.

Please select game...

CLOSE

Which trading game would you like to trade with ?