Saturday, February 21, 2009
Forex Trading Strategies
The Forex market incorporates two primary types of Forex trading strategies. One such Forex strategy is based on a fundamental analysis and the other is based on a technical analysis. As a trader, you will likely have to incorporate both types of Forex strategies in your overall Forex trading strategy. Fundamental analyses are based on economic factors while technical analyses are based on price. There is a general consensus among market participants that the most highly traded currency pairs in the Forex market tend to be technical and the more exotic currency pairs tend to be more fundamental.
While both types of analysis are necessary for successful and profitable trades, most traders tend to rely more on one type than the other. When your Forex trading strategy incorporates technical analysis, you must be prepared to deal with the mathematical concepts necessary to manipulate pricing data. Likewise, when you incorporate fundamental analysis in your trading strategy, you must be prepared to handle the multitude of economic factors necessary to base your trades. In the end, the variety of economic data must be converted into price predictions and many traders resort to technical analysis because it is thought to have a built in mechanism for completing the conversion. However, incorporating a purely technical Forex trading strategy without regard for the fundamental aspects of the market is much like trading on luck. Sometimes you win, sometimes not.
Other factors that will influence your Forex trading strategy are your ability to manage money and to handle the psychological implications of participating in the Forex market. While many people have profited from their Forex trading strategies, losses are all but guaranteed with Forex trading systems. One of the nuances of Forex trading is that it involves calculated risks. If your financial situation or emotional circumstance is such that you cannot afford to sustain losses, you will likely loose more than your investment dollars, particularly if your losses are easily converted to physical illness.
It is important to develop a Forex trading strategy that complements your lifestyle and temperament. You need to understand the investment, the risks and the impact that your choices will have on your investment dollars and your lifestyle. In Forex trading, it is quite possible for a loss to multiple itself as market conditions vary and change. Your Forex trading strategy must include a plan of action in the case of a loss as well as a win. Another consequence of Forex trading is overconfidence. Overconfidence has caused many traders to engage other more costly and more risky trades following a win or series of wins. You will have to be responsible to dedicate the time necessary to track and analyze the trades that you engage. It only makes since that you engage a number a trades that you are reasonably able to manage during a given trading session. Forex trading can also become addictive for certain personalities. Your Forex trading strategy should include indicators that alert you when it is time to enter or exit trading. You cannot become overconfident about a win or series of wins. Likewise you cannot become too depressed over a loss or series of losses. FOREX trading systems are based on calculated risks and the wrong calculation leads to more risk and the potential for more loss.