If you want to be successful in currency trading, then it is very important that you come up with a good Forex trading strategy.
You could never be successful over a long period of time by just gambling with your money.
Some people use ‘flip-a-coin’ strategy. They just flip a coin and depending on its result, they buy or sell a currency.
This is guess work and cannot be relied upon.
Why It’s Important To Have A Forex Trading Strategy
The first reason to have a strategy is that it enables you to learn from your mistakes and improve on them. This is only possible if you have a consistent tactic of approaching the trade.
If you are haphazardly trading, it is impossible to learn from your mistakes. A strategy is very important if you want to succeed with currency trading.
Another reason for having a strategy in place is that it enables you to have definite amount of money to trade. It is totally impossible to speculate with a limitless pool of capital. The bottom line is that it is very important to approach currency trading with a definitive strategy.
Failure to have a strategy means that you will start trading based on your emotions instead of sound objective principles.
How to Choose a Simple Trading Strategy to Follow
Simply put, Forex trading strategies refer to methods of analyses that currency traders apply to decide whether they should buy or sell a currency pair.
These strategies could be manual or automatic but manual strategies are known to give better results.
When you feel that you are ready to start trading in the currency market, it is important to establish a demo account and then paper trade until you are able to make profit.
Without a proper practice, you will tend to jump into the market, something that can make you lose a lot of money. Before you start putting your money into the trade, it is very important that you learn to trade well.
It is also important that when trading, you do so without your emotions. It is impossible to track all your stop-loss points without the ability to implement them on time.
Always ensure that you have set your stop-loss as well as take-profit points and execute them automatically. You should not change these unless you really must. Come up with your choices and then stick to them.
Failure to do so would not only drive you crazy but also your brokers.
Forex Trading Strategies For Beginners
Currency Carry Trading
This is a type of strategy where an investor chooses to sell a particular currency with a comparatively low interest rate and then uses the proceeds to buy currency that can yield a higher rate of interest.
A trader that uses the currency carry trading strategy aims to take advantage of the difference between interest rates. Depending on the leverage amount used, the difference can be quite substantial.
Illustrating Currency Carry Trading strategy with “yen carry trade”:
A forex trader goes to the Japanese Bank and borrows 1000 Japanese yen. He then converts the money into U.S dollars after which he uses the dollars to buy bonds of the same amount.
Let us assume that the interest rate for the Japanese yen is set at 0% while the bond attracts 4.5% profit. Now, so long as there is no change in the exchange rate between Japan and U.S, the trader expects to make a margin of 4.5%.
This is the approach used by many professional traders because it can lead to very large gains when you take leverage into consideration. For instance, in the above example, if the trader uses 10:1 common leveraging factor, he will make a 45% profits.
Forex Day Trading
The term day trader is used to refer to currency traders who buy and then sell a stock in the course of the same day.
These traders make their margins by leveraging large capital amounts. This way, they can take advantage of smaller changes of price in indexes or stocks that are highly liquid. There are several strategies under the day trading technique.
Range Bound Training
This is a trading strategy which identifies stocks that trade in channels.
Through identifying major resistance and support levels using technical analysis, it is possible for a trend trader to purchase stocks at a lower support level (bottom of channel) and sell them near resistance (at the top of channel).
A trader may repeat this process of buying stock at support and selling it at resistance several times until the stock can break out of channel.
Pick a Strategy and Stick With It
No matter which Forex trading strategy you use, it is important to just stick with one when you are just getting started.
Stick with one and master it before attempting to leverage more advanced tactics. It will save you a lot of money in the long run.