trading strategy - key to successful trading

A forex trading strategy - key to successful trading

Before entering the world of forex trading is important to consider the trading strategy that will bring. There is a strategy for trading in currency markets every Forex trader will have to find its own strategy. What is important, however, is that you have clearly defined plan from the very beginning.

Some merchants choose to bring technical approach to trading, while others are more comfortable with the basic approach. And of course healthy, but the truth is that the really successful traders use a combination of both to give a broad overview of the market and allow them to plot specific entry and exit points for trading.

The key concept behind technical analysis is that prices move in line with the trends and that markets have clearly identifiable patterns which can be seen if you know what to look for. This course knowledge and experience come into play, but also a matter of making use of numerous analytical tools that are available and gaining a sound working knowledge of each instrument in turn. Many of these tools work together and with the help of a few with one another can give you a good, clear picture.

Many traders also seek support and resistance levels. "Support" refers to the low prices that is consistently seen as the bottom of the market and that prices tend to rise. "Resistance" levels are high prices, above which the currency trades rarely.

If the currency price breaks or its support or resistance level then prices are likely to continue in that direction. For example, if the price rises above its previous resistance level is seen as bullish and the price can often be expected to continue growing.

Another common tool used in forex trading is that of moving averages. The simple moving average (SMA) shows the average price in the selected time period (say 7 or 14 days) plot over a longer period. Moving averages are used to eliminate short-term price fluctuations and to give a clearer picture of movements in currency prices. Forex traders can plot a SMA to indicate when prices show a tendency to rise or fall. When prices rise above average they will often continue to grow, etc., when prices fall below average, they will often continue to fall.

These are two of many examples of trading strategies that can be used either alone or in combination and Forex traders should use a number of commercial tools to analyze the market situation. If several indicators show that the various tools on the market is moving in a certain direction, can then be traded with reasonable certainty, and relying on the indication of only one tool is often risky.

Fundamental analysis also provides an extremely useful tool and can often be used to strengthen the indications derived from technical analysis.

Whatever your trading strategy must provide clear expectations of market movements and indicate just where and when it needs to enter and exit trades. Sound knowledge and understanding of both fundamental and technical analysis should be the starting point in building your own Forex trading strategy.