Steps to Build Your Forex Trading Strategy
To trade successfully in the forex, a set of proven trading strategies and solid risk
management rules to stick to it. Whether you are experienced traders or beginner
traders, here’s how you can build your forex trading strategy and test the
profitability of your forex trading strategy in just five steps:
5 Steps to Build Your Forex Trading Strategy
1. Understanding Technical Analysis
Technical analysis involves using indicators and price chart to analyze market
direction. Technical analysis helps you identify the possible entry and exit points for
Contrary to fundamental analysis, technical analysis mainly focuses on market
prices and pattern. Fundamental analysis, on the other side, is about the factors
that drive the market prices. These both analytical methods can be used combined
Technical analysis focuses on price patterns and timing, that’s why it is often
considered a neutral tool. To find forex trading opportunities based on technical
analysis, you need to analyze the current market price and need to identify the
possible target levels. While the technical analysis does not guarantee results, it
provides a calculation of the possibilities for different market moves.
Click on below link: Technical Analysis
2. Understanding Fundamental Analysis
In the previous step, you learned that technical analysis is focused mainly on price
actions and trends. Fundamental analysis has a different approach to evaluating the
markets, offering a holistic picture of the market strengths and weaknesses.
A fundamental analyst takes a look at key events that could affect a particular
currency’s strength or weakness. Those include political and economic data as well
as natural disasters.
Fundamental analyst utilizes all the available information in estimating a currency’s
strength. Attention is focused on key economic reports and data, including GDP and
unemployment data, production data and announcements of interest rates.
3. Choose Your Entry and Exit Points
Forex traders are exposed to trading risks, regardless of their approach. That’s why
understanding price action is key to determining when you place your trades and
when you exit a position. Here, you will learn four key price actions concepts used in
the forex trading to identify entry and exit points.
1. Support & Resistance
Support and resistance refer to important trading levels where the price has
reached and bounced back multiple times. You think of them as key points where
demand and supply meet.
It is a break through an established support or resistance level. Breakouts are strong
signals, especially when confirmed by other indicators like gaps.
3. Gaping Action
Gaps are important as they signify that buyers or sellers are making their moves.
But, you have to confirm a new trend using multiple indicators before you jump in.
4. Sideways Market
A forex market trades sideways refers to price action within a narrow range of
strong support and resistance levels. When a market trades sideways, then traders
are preparing for a breakout.
Click on below link: Entry and Exit Points Forex Trading Strategy
4. Managing The Trading Risk
The market is quite volatile and bigger your potential gain, that higher the risk. Here
are few tips to keep the risk in control.
1. Avoid Over-Trading
Although volatile markets can be tempting, a good rule of thumb is to avoid the
risking more than 2% of trading account balance on any single trade. Trading more
than that would expose you to failures that are difficult to recover.
2. Minimize Losses Using Setup Stop Loss Orders
Success in trading does not consist if winning trades just. On the contrary, it is the
aggregate of winning trades and losing trades. That’s what makes stop-losses a key
factor when it comes to profitability. Setting up stop-loss orders will also eliminate
the need to monitor your position constantly.
5. Test Your Trading Strategy
While you cannot replicate the risks involved in trading with the real money, a demo
environment can help you test the soundness of investing strategy. Every new
strategy needs to go through a period of trial and error method before you can
confidently invest your hard earned money on it.
Click on below link: Back Testing a Trading Strategy Works?