What is a Forex Trading
A forex trading strategy is a technique used by
a forex trader to determine whether to buy or
sell a currency pair at any given time.
Forex trading strategies can be based on
technical analysis, or fundamental, news-
The trader’s currency trading strategy is
usually made up of trading signals that trigger
buy or sell decisions.
Forex trading strategies are available on the
internet or may be developed by traders
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Basics of a Forex Trading
Forex trading strategies can be either manual
or automated methods for generating trading
Manual systems involve a trader sitting in
front of a computer screen, looking for trading
signals and interpreting whether to buy or sell.
Automated systems involve a trader
developing an algorithm that finds trading
signals and executes trades on its own.
The latter systems take human emotion out of
the equation and may improve performance.
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Creating a Forex Trading
Many forex traders start with a simple trading
strategy. For example, they may notice that a
specific currency pair tends to rebound from a
particular support or resistance level.
They may then decide to add other elements
that improve the accuracy of these trading
signals over time.
Creating a Forex Trading Strategy
There are several different components to an effective forex trading strategy:
Selecting the Market
Traders must determine what currency pairs they trade
and become experts at reading those currency pairs.
Traders must develop rules governing when to enter a
long or short position in a given currency pair.
Traders must determine how large each position is to
control for the amount of risk taken in each individual
Traders must develop rules telling them when to exit a
long or short position, as well as when to get out of a
Traders should have set rules for how to buy
and sell currency pairs, including selecting the
right execution technologies.
When Is It Time to Change
A forex trading strategy works really well
when traders follow the rules. But just like
one particular strategy may not always be a
so what works today may not necessarily
If a strategy isn't proving to be profitable and
isn't producing the desired results,
Traders may consider the following
before changing a game plan:
1. Matching risk management with trading style: If
the risk vs. reward ratio isn't suitable, it may be
cause to change strategies.
2. Market conditions evolve: A trading strategy may
depend on specific market trends, so if those
change, a particular strategy may become
obsolete. That could signal the need to make
tweaks or modifications.
3. Comprehension: If a trader doesn't quite
understand the strategy, there's a good chance it
won't work. If a problem comes up or a trader
doesn't know the rules, the effectiveness of the
strategy is lost.