Making a Good Forex Strategy

Even if you have the best forex broker who can give you trading tips and effective forex strategies, it is important that you also have a decent knowledge on how to create a good strategy on your own. It is even advisable that you already have a solid plan or strategy even before you deposit money with your broker and start trading on the forex market. Doing so will give you a higher chance of making good profits.

For new forex traders, this can be a daunting task, so here are some useful pointers that you can keep in mind:

1.     Money Management Principles

No matter what strategy you choose to implement, make sure that you always use firm money management principles. You must always use quite a tight stop loss that will get you out pretty fast if you make a bad decision, while maximizing your gains when you make a good call.

For example, is you use a stop loss of 20 points, it wouldn’t be a good idea to aim to make gains of just 10 points for every trade.

Your target should be to make at least 20 points as this would only entail a 50% success rate to break even, but better still would be to raise your target profit even more, or look to close half the position at around 20-40 points and let the other half run for as long possible.

2.     Know about Support and Resistance

Professional traders enter and exit positions around key levels of support and resistance. They use Fibonacci levels, trendlines, and other technical indicators, in order to help them find areas of support and resistance.

With this, it is just right to know how to spot these levels of support and resistance by yourself, such that you will be entering or exiting positions at the same time as these experienced traders and big financial institutions, which are the real drivers of the forex market.

3.     Focus on Long Term Trends

When trading in the foreign exchange market, it is necessary that you focus on the bigger picture. Even if price reversals can make you profit, it is more likely that you will earn money by trading with the trend rather than against it.

4.     Do Not Stick with Short-Term Charts

Although you can possibly make good profits within minutes when you trade short-term charts, such as the 1 and 5-minute charts, it is recommended that you stay away from these.

Keep in mind that in the long run, it may be difficult to have consistent gains by trading this way. The primary reasons for this are because you have many random price movements to deal with and have spreads eating into your gains too.

Following all of these pointers and arriving at the perfect strategy is just the start of your career in forex trading. You should not only be ready to implement your strategy, but instead, should also be able to tweak it in order to adapt to changing conditions.