There are many strategies you can use for your currency trading. Explanations for some can be found free online, while others form part of complex systems sold for substantial fees. Good currency trading strategies are certainly worth what they cost.
But right now I want to talk about currency trading strategies in a similar way to any other business strategy.
In business, when you plan your strategy you follow a process of answering questions about your business, where it is now, where you want it to go and how you'll take it there. It's the same with setting strategies for your currency trading business. Consider these three questions and answer them fully and honestly.
What currency pairs will you trade?
This is a decision you make only after careful study of the various currencies traded. Some pairs are so volatile that their exchange rates vary many times in one day (called intra-day), while others remain fairly steady. As in any investment, volatile markets are risky, but their returns can be very high.
A common term in forex trading is "pip", which stands for percentage in points. A pip is the smallest price increment in forex trading. In the forex market, you'll see prices quoted to the fourth decimal point (except for the Japanese Yen, which is quoted to the second decimal point). As an example, Europs to U.S. Dollars (EUR/USD) could be bid at 1.1915 and offered at 1.1918. In such a case, the "spread" (or difference) is 3 pips (1.1918 less 1.1915).
Forex experts all have their own opinions about which currency pairs are most volatile. But here's a guideline. Economic indicators in their own and other countries often affect currency prices. Any pair of currencies is affected 50% by each half of the pair. So in EUR/USD, for example, you'll be affected 50% by the Euro and 50% by the U.S. Dollar. EUR/USD is often considered one of the most volatile pairs, largely because the Euro is influenced by the economies of all European Union countries.
Do you plan a long stay in this position, or will it be a quick in-and-out?
Of course this will partly depend on your choice of currency pairs to trade. In highly volatile pairs, you may want to be in and out of a trade in minutes! This type of trading pattern requires constant vigilance, of course. You can do this by being in front of your computer full-time and watching the market yourself, or you can make use of forex robot trading.
If you don't want to use robots yet (but you should at some point) and you can't devote yourself full time to forex trading, you might want to look for less volatile pairs to trade for now.
Under what conditions will you exit the position?
Deciding on your exit strategy is an important part of your overall trading strategy. There are two kinds of exit strategy: take-profit and stop-loss, sometimes known as T/P and S/L.
If you place a stop-loss order with your broker, you will set the prices at which you no longer wish to be in the trade because of the possibility of loss. Your position will automatically be converted to a market order to sell if the pair reaches that stop-loss point.
The take-profit strategy depends on what is called a limit order, or simply limit. When your designated profit point has been reached, you are automatically switched to a market order to sell. You would do this to ensure that you take a profit on a position in case it suddenly reverses itself and starts to be a loser.
This is a basic overview of currency trading strategies.
For more practical information, simply explained, about forex trading, visit Martin Miller's site at http://www.forexinfoplace.com
No comments:
Post a Comment