To receive new articles instantly Subscribe to updates.
How to create a forex trading strategy?
Written by: PaxForex analytics dept - Tuesday, 04 November 2014 0 comments
The forex market continues to grow every day and more and more new forex traders enter the largest and most liquid financial market of the world. Daily turnover is set to exceed $6 trillion; this means that every day $6 trillion are exchanged. This amounts to over one-third of the annual GDP of the US every single day. The numbers are mind boggling and may even appear frightening. As you can imagine with this amount of daily turnover there are plenty of forex trading opportunities and therefore profit opportunities.
While many new forex traders may have arrived at forex trading guided by earning a lot of profits, you need to be aware that you will not go straight to earning. Forex trading is for serious traders who understand that before you can earn you will need to invest in yourself and learn how the forex markets functions. You need to understand the terminology and functionality of the forex market in order to be able to work on a profitable forex trading strategy so you can capitalize from the large daily turnover.
The first thing a new trader should focus on is not how to earn money, but rather how to keep money. Risk management is a crucial part of trading as it will determine how long you can remain an active forex trader. Once you have
determined a risk management profile, which should consist of which percentage of your account you are willing to risk per trade and what lot size you wish you to trade, you should determine of you are a fundamental forex trader or a technical forex trader.
Deciding on which type of analysis you favor will dictate your next point of focus. Fundamental forex traders will study all aspects of a fundamental analysis while technical forex traders will study indicators, chart patterns and candlestick formations. The knowledge acquired will be a crucial stepping stone in creating a rock solid forex trading strategy. Consider each piece of information as a building block and once you have all blocks in place you can start building your forex strategy.
The final step will be trial and error. You need to test your strategy, keep a trading journal so you can record everything and then analyze your good trades as well as bad trades. Find patterns in your trading and then you can make adjustments, one at a time and see the difference. The best way to test a strategy is in a real account with a small deposit and low lot size. Once you achieve consistent returns you can add deposits and increase your lot size.