Forex Trading Strategy

A great deal of time, market knowledge, and understanding, trading strategy and a large amount of self restraint make for successful trading. It is not a simple matter. ADVANCED-FOREX does not currently manage accounts or offer trading advice. This is the job of the money managers and introductory brokers.

As market professionals we at ADVANCED-FOREX can however point the novice in the right direction. At ADVANCED-FOREX we can determine what are the correct trading tactics and considerations and what might well be total nonsense. Anyone who says you will always make money in foreign exchange markets is being deceptive and untruthful. Foreign exchange, by nature, is an extremely volatile market. The practice of online currency trading by way of margin increases that volatility proportionally. The forex market is a very 'fast market' which is naturally inconsistent. Following this rule, it is logical to say that in order to make a successful trade, a trader needs to take into account technical and fundamental data and then make an informed decision based on their understanding of market sentiment and expectation. Timing a trade correctly is infinitely the most important variable in trading successfully but often there will be times where a traders' timing will be off. Don't expect to generate returns on every trade.

Let's identify what a trader should do in order to put the best chances for profitable trades on their side:

Trade with money you can afford to lose:

Trading forex markets is speculative, at the best of times, and may result in loss. It is also exciting, exhilarating and can become addictive. The more you are ‘involved’ with your money the harder it is to make careful and alert decisions. Money you earn is precious, but money you need to live should never be traded.

Identify the state of the market:

What is the market doing? Are trends showing an upward or downward motion or are they within a trading rang?. Is the market strong or weak? Is this an old trend or does it look like a new trend that's forming. Perceiving a clear picture of the market situation is laying the basis for a successful trade.

Determine what time frame you're trading on:

Often traders enter the market without thinking when they would want to get out, after all the goal is to make money. This is true but when trading, one must estimate in one's own mind's eye the movement that one would expect to happen. Within this conjecture, resides a price development during a specific period of time. Attached to this is the plan with which you wish to exit that trade. The importance of this is to put your trade in perspective, in your own mind, and although it is virtually impossible to know exactly when you will exit the market, it is important to define from the outset if you'll be 'scalping' (trying to attain a few points off the market) trading per day, or continuing on for a longer period. This will also determine what chart period you're looking at. If you trade many times a day, there's no point basing your analysis on a daily graph, you'll probably want to analyse 30 minute or hourly graphs. It is also important to know the different time periods when various financial centres enter and exit the market as this creates more or less volatility and liquidity and can influence market movements.

Time your trade:

You may be correct about a potential market movement but be too early or too late when you enter the trade. Timing considerations are twofold; an expected market figure like CPI, retail sales or a federal reserve decision can consolidate a movement that's already underway. Timing your move means knowing what's expected and taking into account all considerations before trading. Technical analysis can help you identify when and at what price a move may occur. We will look at technical analysis in more detail later.

If in doubt, stay out:

If you're unsure about a trade and find you're hesitating, remember the old saying “discretion is the better part of valour” stay out!

Trade logical transaction sizes:

Margin trading allows the forex trader a great amount of leverage. Trading at full margin capacity (in ADVANCED-FOREX's case 1%) may make for some exceptional profits or losses on an account. Scaling your trades so that you may re-enter the market or make transactions on other currencies is generally wiser. In short, don't trade amounts that can potentially wipe you out and don't put all your eggs in one basket.

Gauge market sentiment:

Market sentiment is what the majority of the market appears to be feeling about the market and therefore what it is doing, going to do, or will do. This is basically about trend. You may have heard the term 'the trend is your friend’; this basically means that if you're in the right direction with a strong trend you will make successful trades. This of course is a very simple way of saying a trend is capable of reversing itself at any time. Technical and fundamental data can indicate if the trend has begun some time before and if it is strong or weak.

Market expectation:

Market expectation is relative to what most people are expecting as far as forthcoming news is concerned. If one is expecting an interest rate to rise and it does, then there usually will not be much of a movement because that information will already have been taken into account by the market, alternatively if the reverse happens, markets will usually react violently.

Use what other traders use:

Under the most optimal circumstances and conditions, all traders would be looking at a 14 day RSI and making trade decisions based upon that. If that was the case, when RSI went below the 30 level, everyone would buy and subsequently the price would rise. However, in an imperfect world not all market participants follow the same technical indicators, draw the same trend lines and identify the same support & resistance levels. The great variety of opinions and techniques used translates directly into price differences. Traders, however, have a tendency to use a limited variety of technical tools. The most common are 9 and 14 day RSI, obvious trend lines and support levels, Fibonnacci retracement, MACD and 9, 20 & 40 day exponential moving averages. The closer you get to what most traders are looking at, the more precise your approximations will be. The reason for this is simple arithmetic, the greater the numbers of buyers than sellers at a specific price will move the market up from that price and vice-versa.

 

Privacy Policy

Advanced-forex is a professional financial intermediary, which our counter parties are directly regulated by the Swiss Federal Department of Finance, Anti Money Laundering Control Authority. As forex specialist, Advanced-forex provides only currency trading via highly professional forex trading software. All customers are aware that this information or any part thereof has been prepared without taking account of your objectives, financial situation and/or needs. This information is not intended as personalized investment advice and does not constitute a recommendation. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. The analysis is based on the information which Advanced-forex finds reliable and accurate, but Advanced-forex does not assume any responsibility for any material nor for the transactions made on the basis of the information or the estimates of the analysis. Advanced-forex cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct, indirect and/or consequential loss arising from any use of this information, document or its content. All opinions and estimates constitute Advanced-forex analysis as of the data and are subject to change without notice. Advanced-forex does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions. Past performance is not a reliable indicator of future performance.