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How to develop a forex trading strategy
Written by: PaxForex analytics dept - Friday, 27 June 2014 0 comments
Trading successfully requires time, market knowledge, market understanding, forex online trading strategy and a large amount of self-restraint. Before a strategy is ever created traders first need to decide which market condition they are looking to take advantage of. There is a choice of three market conditions which we can take advantage of (trend, range and breakout).
Each of these market conditions can exhibit markedly different tones. The support and resistance that define ranges become broken when price breaks out from some news event or stimuli. After a forex trader will decide which market condition they want to build their strategy for they need to decide which timeframes they want to analyze and execute their trades on.
The next step in building a forex trading strategy is to design how the trader will be entering and exiting the trades. One of the most important parts where forex traders should focus on is risk management. This means that you should know at any point of time how much of your trading capital you are willing to trade with and if the
market goes against your prediction how much you are willing to lose.
After you determine a set of rules that would have allowed you to enter themarket look to those same examples and see what your risk would have been. Determine what your stops will need to be on future trades in order to capture profit without being stopped out. Analyze price movements after entry and see where on your charts a stop should be placed and make sure that those stops will match with your risk management.
Forex traders should create their own trading strategy on a time frame which suits their preferences and follow it. Trading strategies fall in and out of favor over different time frames; occasionally changes will need to be made to accommodate the current market and your personal situation. For forex traders it is very important to understand that forex market movements are not easy predictable and not any trading strategy will work in different time frames.