October 10, 2013

The Strategy Component of Your Forex Trading Plan

Forex trading

Forex trading is not gambling. While there is no skill involved in gambling, forex trading is a precise profession that demands accuracy. In fact, the forex market is so volatile that even skill is not enough by itself. The skill that you possess in the forex market needs to be coupled with strategy for you to have any hope of profiting from the market.

Furthermore, your strategy needs to be made a part of an overall plan for it to have the kind of effect that it has the potential to have. Therefore, in order to succeed, you need to have a good forex trading plan which, in turn, needs a good forex trading strategy. Here is what you should focus on to ensure that the strategy component of your plan is sound.

Chosen Setups

Every strategy has various setups that a trader can use. However, only the truly experienced FX trading professionals should attempt to use multiple setups simultaneously. For new traders, it is more advisable to focus on one or a few setups at a time until they are perfected.

Even so, you will have to choose setups to implement your trading strategy properly. Make sure that you choose simpler setups if you are new to the forex market.

Finding Setups

Just choosing setups is not easy because you have to find them in your forex charts as well. The market conditions will yield numerous situations and it will be your task to sift through them to find your setups. You need to figure out how you are going to find your setups. You should ideally identify markers that will show you that your chosen setup exists.

Entry Signals

Once you know which forex trading setups you are using and can find them easily on forex charts then you would be able to find entry signals. Entry signals, in simple terms, are triggers on the charts that show you that the opportunity is right for placing a trade in the market. You need to define these triggers on the basis of various things such as your risk tolerance and your profit targets before you can begin using them.

Exit Signals

Exit signals are similar to entry signals with the exception that they are triggers for exiting trades rather than entering them. Ideally, you should know when to exit a trade at the same time as you know when to enter them.

However, some forex trading strategies can yield exit signals later as well. Regardless of which strategies you are using, you need to be sure of your exit signals before you exit a trade.

Trade Management

Trade management is a crucial component of forex trading strategies that many forex traders tend to ignore. Trade management basically refers to how you will build your trade and handle it while it is open.

It means the use of various special orders such as stop losses, take profits, and trailing stops. These special orders will help you protect yourself from various FX trading risks that exist in the market.



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