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Factors in Defining Your Trading Strategy

Factors in Defining Your Trading Strategy

By Richard Cox

When traders are beginning in the forex markets, one of the first questions that is commonly asked is how to construct and choose a trading strategy that generates successful gains over the long term. This can seem daunting at first, as it is easy to find articles available in many internet locations that will describe the best ways of doing this. But it can be difficult to know how reputable these authors truly are and this can make it risky to use these unverified strategies with live reading accounts (and real money).

“The fact is, there are many different choices available for new traders that are looking to building an effective forex trading strategy,” said Haris Constantinou, currency analyst at TeleTrade, “and this added flexibility will allow you to design a system that utilizes your strengths and will fit into your daily schedule.” For example, some traders will prefer to use fundamental news and economic data when placing trades while others will prefer to use technical analysis and price charts when initiating new positions. This allows traders with different knowledge bases to play their strengths so that they can make trades that are as informed as possible.

In addition to this, it should be remembered that time frames take on a high level of importance, as this is the only way to identifie appropriate stop loss and take-profit levels that are proportional with one another. So, for example, if we are trading the EUR/USD it would almost never make sense to expect a 500 pip gain using an intra-day strategy. Some traders will look to use shorter time frames to open and close positions more quickly, while others might feel more comfortable with daily or weekly perspectives in defining their positions. Traders will less time availability each day will likely want to use longer term time frames, as this will enable forex trading that aligns better with your schedule.

Choosing One or More Effective Forex Strategies

Another point to remember is that forex traders do not need to limit themselves to a single strategy by itself. Choosing one strategy and settling on it for all of your trades is a real possibility and can make the entire experience easier, but this is not the way most forex traders approach the business. In fact, most traders have a couple of different strategies that have been tested over time and can be used in different trading situations. This is viewed by many as a vital way of approaching these markets because trading conditions are not constant, and in many cases there is a real need to alter your traditional practices. Since the economic environment is always changing, it is generally a good idea to adopt a few different strategies that can be used when different market scenarios unfold.

This was posted in Bdaily's Members' News section by Richard Cox .