Building Your Own Online Forex Strategy - Considerations to Take into Account
Building Your Own Online Forex Strategy - Considerations to Take into Account
The international regulatory bodies allow you to trade most currencies for European and USA pairs at the market rates. In essence, by looking at the exchange rates, and by prognosticating on foreign and international news, foreign exchange traders are making gambles that currency valuations will change in the direction they're anticipating in the future.
You will minimize any gambling by having good discipline centered around money management, stoploss criteria and exit points on profit taking. On a daily basis the amount of money in dollar terms traded through this market is quite staggering, sitting in the wings waiting for an opportunity to make 50 pips if you think you have the type of personality and patience that would suit this scenario, there is a lot of cash to be made but only IF you follow your plan and use and develop your skill set.
One of the significant advantages of buying foreign exchange investments is that you're always guaranteed to have something left; it minimizes your risks of a catastrophic loss. You will be looking at generating a return of anything between 6% - 20% per month by trading Forex as opposed to getting this return a YEAR if you placed your funds in some sort of Government financial instrument.
Spotting trends is what separates the good forex traders from the mediocre ones.
So firstly need to decide if you are going to trade a trending market or you are going to trade the ranges when the currency pair is bouncing around with that particular range.
Second on your list of considerations is your buy point trigger. What will get you in to trade? Fundamentals or news driven aspects or indicators such as MACD etc?
The third is the stop-loss order; in essence, this says "Stop the trade if the price changes outside of the following band". Given the automatic arbitrage systems, this is useful to minimize risks.
The forth step is your profit taking strategy, when will you take your profit off the table, what strategy will you use?
The last issue surrounds money management and is all about how much (as a percentage of your capital) you are going to place on each position you take.
There is also the question that you need to answer with regards to the volatility and timeframe that you will trade, are you trading a position, a swing, a scalp or day trade?
Because bid and offer prices are wide when we are in non-volatile periods you would be best served knowing when each market opens and closes. For example if you day trade you need to ensure that you are trading when London and New York overlap. You'll also want to keep well versed not just on financial news, but world events. Changes in oil prices, trade policies, union rules, even fashion trends, can foretell trends on how currency exchange rates will move.
Don't cling to investments for patriotic or sentimental reasons; that's the surest way to lose your shirt. It's also important to diversify take your profits out of commodity and currency exchanges and put them aside in something more stable, to minimize your risks.
I hope you get some idea as to the component parts of a good strategy, the key is to have all these parts in your trading plan BEFORE you even execute a single trade.
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