Your forex trading strategy plays a key role in deciding the level of success you can reach as a trader. The amount of knowledge and skills you have as a trader can only be put to use when you have a sound strategy that suits your trading personality and aligns with your trading goals. Another thing to consider while choosing your strategy is the amount of leverage you want to use for amplifying your trade size. But when you are using leverage, you need to maintain the margin level. You can find right margin numbers using a margin calculator. Such tools are essential for ensuring precision in the trading process.
There are many such factors that you need to take care of for building an ideal strategy for yourself and in this blog, I will be listing the most important things that you should consider before finalising your forex strategy.
Your Trading Goals and Trading Style
The primary goal of every trader is to make a profit and there are a lot of opportunities to earn profit from the liquid and volatile forex market. The currency pair prices are always moving with the exchange rate fluctuations and as a trader, you will make a profit by anticipating the price changes. But the intention to make a profit cannot be considered as a trading goal and you need to personalise your goal to make it more clear and well-defined. Your goals should also be realistic and attainable.
Once you have set your trading goals, you can think about the trading style that you want to adopt for executing your strategy. Those who want to trade with short timeframes can consider scalping or day trading as their trading style and those who want to focus on longer timeframes can choose swing trading or position trading. You should select your trading style after comparing the pros and cons of each trading style and the level of risk that you are comfortable with.
The Broker and Trading Platform
Most traders don’t pay much attention to the broker and trading platform while finalising their strategy. But you need to make sure that the chosen broker and platform will be good enough for implementing your strategy with perfection. The trading conditions that you get with a broker will surely impact the trading process and results. It is important to find a broker that can support your trading style and strategy while offering a secure and seamless trading experience.
First, you need to check the platforms they support for trading along with the tools you can use on these platforms. If the platform offers simple yet essential tools, then that’s a good sign. These tools can make your life as a trader quite easy. Take your time to try the demo accounts to pick a suitable platform. You can go live only after finding a suitable trading environment that complements your strategy.
Method of Analysis
All your trading decisions should be driven by logic and analysis of the market situation. This analysis can either be technical, in which you simply look at the price movements on a candlestick chart or fundamental, which focuses on macro and micro economic factors that influence currency pair prices. You can also consider the market sentiments for an in-depth analysis and confirm it by checking the data you get from other reliable technical indicators added to the chart.
Even in the case of technical analysis, you need to decide the techniques you will use to find the best trade setups. You should also check the price patterns while analysing the charts along with the timeframes that you considered for analysis. When you are sure about all these aspects, framing your strategy will be easier. So, learning about market analysis is an important thing to do before devising your strategy.
Determine Entry and Exit Points
Traders follow different approaches for determining their entry and exit points for a trade. Once you identify the trade trigger, you need to consider your profit target and risk/reward ratio for planning the entry and exit for the trade. Thus, you need to assess your risk tolerance and also set the profit targets before finalising your trading strategy. Because different strategies have different levels of risk and profit potential. You should strike a balance between the two to find the most favourable price levels.
Trading calculators are very helpful in determining the stop loss and take profit levels for trade as they assist in taking calculated risks. The exit of a winning trade will be automated with a take profit order and a stop loss order is placed to automatically close a losing trade at a smaller loss.
Trading Cost
The last thing to consider before finalising your forex strategy is the cost of trading. The trading cost in the forex market is lower in comparison to other financial markets. You can minimise the cost by signing up with a broker that offers solid trading conditions like tight spreads and low commissions. For those who are going to keep their trade positions open overnight, you need to consider another cost which is the swap fee which is charged on all trades that are held for more than a day.
The spreads, commission and swap fees you pay as a trader will have an impact on your potential profits. You need to keep this in mind while devising your strategy. There is another hidden cost that you need to consider while building your strategy and, it is the amount of time that you will have to invest for carrying out the trading process. Traders who pay attention to all these aspects can surely select a suitable strategy and execute it well with some practice.
Wrap Up
To conclude, your strategy for forex trading is something that needs to be chosen with a lot of care and consideration. But just having a sound strategy does not guarantee success and you need to follow a disciplined approach and strive for improvement for getting the best possible results.
