Forex trading is the act of speculating on price fluctuations across two different currencies – had it not been for this, there would be no need to use a forex trading strategy.
There are many ways that traders can use these tools to their advantage; whether they choose to go with the classic support and resistance levels or opt for more complex indicators like Bollinger bands, there is an abundance of choices available.
Traders heading into the forex market should realize that gaining information about needs will give them a better chance at success.
However, there are pitfalls that new people entering the market should look out for; if you don’t know what you’re doing, it’s straightforward to lose money trying to guess price movements.
Here are a few of the advantages of using trading strategies in forex:
Create the unique strategy that fits you
You may have already heard it said that one man’s loss is another man’s gain; well, this is very true in forex trading too!
Any profitable strategy can be copied and pasted to produce the same results as the original trader. Yet, they are entirely different with their circumstances, motivations, fears and risk tolerances.
So, do you want to learn how to be profitable without losing too much of your time or risking too much of your money?
It would help if you had a themed strategy that fits into your life and protects it. The best way to do this is to make your unique strategy using the building blocks available within the forex tools.
Use stop losses effectively
Traders commonly use stop-loss orders as they are seen as a safe bet, NOT in forex! To have an effective trading plan means that you use any tool available to reduce unnecessary risks, and one of those is using stop losses with the proper position size.
How do you use stop losses effectively? By placing them at appropriate levels where the risk is worth taking, knowing that your trade has a high probability of success and trailing them as the trade moves in your favour.
Cut losses quickly
One way to ensure that you stay in the game for a long time is by cutting your losses quickly.
This doesn’t mean exiting a trade as soon as it goes against you but having an exit plan in place so that you know precisely what you will do if the trade moves against you by a certain predetermined amount or more information on how to cut your losses quickly.
Use limit orders to get into a trade with a good risk/reward ratio
If you are looking for high-probability trades, you should use limited orders to get into the market. It will allow you to enter a trade at a price you are comfortable with and give you a good risk/reward ratio.
Remember, if the trade moves in your favour, make sure that you move your stop loss up to protect your profits!
Have a trading plan and stick to it!
The best way to ensure that you are profitable long-term is to have a trading plan and stick to it.
A trading plan gives you guidelines as to how specific trades will be taken, the risk level is, and what the reward potential is – this way, you can ensure that your decisions are not clouded by greed!
Have multiple orders open at once.
It’s essential to overlook which trade or currency pair you should trade next by having multiple orders open at once so that when one order gets filled, another order automatically gets opened in its place.
It will allow you to maintain a constant flow of trades and will enable you to focus on the current transaction at hand.
Use a demo account to test your strategy
The best way to learn any new skill is by practising it, especially true when it comes to trading!
A demo account allows you to trade in a simulated environment, which means that you can test your new strategies without risking any real money.
Not only does this give you confidence in your new design, but it also allows you to tweak it until it is profitable for you.