WHAT IS FOREX TRADING STRATEGY? 3 STEPS YOU MUST KNOW
Forex trading is booming in this century. To make money sustainably from this market, you need a good forex trading strategy besides a good broker. So, what is forex trading strategy? What do we need to make one? Does a trader use one or many forex trading strategies at the same time? When should we change it? All your questions will be answered here today in this article.
What is forex trading strategy?
A forex trading strategy can be understood as a technique or plan that a forex trader use in the forex market to make money. To be more specific, a trader use a trading strategy to help them decide when they buy or sell a particular currency pair. All forex trading strategies are based on analysis, including technical, fundamental, and sentimental analysis. Moreover, you can include other factors such as charts, indicators, forex signals, news, or events to strengthen your trading strategy. A trader can develop his or her own trading strategies or just simply find one online.
If you're new to forex trading, you have to read:
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Developing a major key forex strategy
Of course there are the manual way and the automatic way.
If you prefer the manual way, you need to sit in front of the desktop for a long time to analyze the market by looking for specific signals. Then, you can predict the direction of the price. Finally, you choose the time to buy or sell a currency pair to make profits. You can get help from trading apps or indicators.
In the age of Internet, there are hundreds of automatic forex strategies (forex systems) being sold online. These systems are developed by professional traders. They will do everything for you automatically. You just need to find a strategy that you like. However, since the forex market is very big, there are a lot of scammers. If you purchase a forex system, it can be risky that the system is fake.
What to notice when developing a forex trading strategy?
In fact, when you make a forex trading strategy, you are looking for a pattern. For example, you observe a specific currency and notice that it has the tendency to move in specific directions in specific conditions. Therefore, next time, you know what to do when the condition re-appear. That’s your new trading strategy.
To look for a pattern, you should pay attention to these elements:
- The market: Pick your own currency pair. Keep observing and analysing it until you’re a professional when it comes to that currency. It’s better to choose currencies that have lots of news and come from big markets.
- Trading volume: Check carefully how much you trade is the safest. Don’t take chances too much at the beginning. Control your risk score.
- You must know what affects your orders when you enter them.
- Pick the right indicators or tools or apps to help you optimize your trading strategy.
Change your strategy?
Like I just said, building forex trading strategies is looking for patterns and embrace them. However, the forex market changes every minute. A strategy that brings you a lot of money today may cost you a fortune next week. When you start to see your strategy failing to make profits, consider developing a new one because the market might be affected and your strategy has become ineffective.
However, sometimes there are just slight changes in the market which make your strategy ineffective for a short time. So, before changing your forex trading strategies, consider the following factors:
- Risk management: If the strategy has become too risky compared to the profits it brings, you should consider changing it. Always minimize the risk before thinking about maximizing profits.
- The current condition of the market: A forex strategy always depends on the trends of the market. Therefore, if there are significant changes to the market, you should consider refreshing your strategy, for example, changing from one minute strategy to day trading strategy. On the other hand, if there are signs that the changes in the market are just short term, wait for it to pass and keep your strategy. In short, analyze the market thoroughly first.
- Knowledge: Make sure you understand your strategy thoroughly. You can explain it to a friend to see if they can understand it. Find all the best evidence to convince them and yourself that this strategy is safe and profitable.
Final note: Changing a forex strategy is time-consuming and possibly costly. Therefore, you should think hard and carefully before making changes.
In summary, a forex trading strategy is very vital to your success in forex trading. Lots of people lose so much money just because they don’t take the strategy serious or follow blindly to some strategies online. Study your strategy thoroughly if you bought it. To test a forex trading strategy for free, you can always use the demo account of forex brokers.