Solid Forex Trading Tips: Importance Of Having An Effective Strategy In Place

| April 17, 2014


Investors have regarded forex as the most reliable trading method. Many of them currently prefer forex over stocks, commodities and indices. This is due to the uniqueness of the forex market with various factors affecting the forex environment and prices. The idea behind this type of trading is quite simple. Investors will just have to trade in two currencies, the most popular of which is the USD/EUR pair. Investors can select any pair of their liking. They just have to ensure that they know the currency’s history and the future market risks.

Importance of Forex Trading Strategies

Forex with independent investor is quite an attractive way to earn money. It is important for people to deeply understand a lot of market peculiarities to make sure that the trading will be profitable. To keep the consistency of trading profitability, a successful trading strategy must be used within risk management limits and at the right time.

Forex Range Trading

Usually, currencies do not move sharply but stay within particular boundaries or ranges. Such period of time depict the Forex investment community’s indecision on the direction of a certain Forex pair. This is when currencies tend to move between resistance and support levels.  When a specific current pair is being spotted not moving in a certain direction or just recently stopped moving and bounding off past low or high, traders must prepare for a range and consolidation right away. As trade is exhausted on its own, some people take profits and leave the market giving way for the perfect timing for a range forex trading strategy.

Forex range trading is a more advanced but complicated trading system than Forex pair trading. Ranges are expected to vary in time and size. A number of currency pairs create short and small, others longer and huge term ranges. In a Forex day trading, for example, it is likely for a currency pair to stay in a certain range all throughout the day or a week or even months. It is imperative to establish definite rules as well as easy and unique strategies for trading various types of ranges. Of course, this would depend on the particular Forex trader’s targets.

Creating an Effective Trading Strategy

The following considerations must be addressed by traders.

  1. Reasons why trade (Which pair? Why sell or buy?)

A lot of traders enter a certain position just because they are bored or want to feel the excitement of being short of long. But, this will only lead to a disaster. It is important for traders to sell or buy any pair for a reason.

  1. Trade timing

Concerns to be addressed include why trade today? Should the investor trade before or after economic news publications. Should he trade at night or in the day?

  1. Trading Objective (stop losses and profit target)

This refers to placing one’s stop loss and take profit before joining the trade because the trader can change that all the time. Most traders prefer to take their profits at an early time while they let their losses run.

  1. Money management

This includes accepting that fact that no person can have a winning ratio of 100 percent and everyone can be wrong in terms of trading. A trader who knows how to manage his money determines the risk he wants to take on every trade.

  1. Documentation and results analysis

It is imperative to monitor the past trading and results so that the mistakes committed in the past will be recognized and avoided.

Author Bio

Taylor Davis is a successful forex trader for more than five years now. Most of his blogs are focused on forex with independent investor giving emphasis on how beginners should enter the forex market.

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