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Developing a Currency Trading Strategy
Submitted by Tradervox on Sat, 25/09/2010 - 21:13
Developing your own strategy for a successful online currency trading is as important as your investment decisions. Online currency trading without a strategy is to rely entirely on chances for your success or failure.
Making the right trading decisions and developing a sound and effective trading strategy is therefore the most important foundation of forex trading.
For developing an online forex trading strategy, you should have a working knowledge of forex, how the market works, different methods of technical analysis, and knowledge of some of the popular technical studies. A successful trading involves strict guidelines for return on investment as well as an optimized risk management. With the rise of the internet, forex trading is almost instantly. Your online currency trading strategy therefore should be full proof to handle instantaneous decisions.
It is advisable to form the online trading strategy based on some technical analysis, such as, Simple Moving Average (SMA). With huge online and conventional resources, with some research you can understand the theory of many such technical analyses. For example, you can formulate a set of discipline like: if the price of the currency crosses above a 12-period SMA, you will treat it as a signal to buy at the market; when the currency price crosses below the 12-period SMA, you will 'stop and reverse'. So you will always have either a long or short position after the first signal.
Many seasoned traders combine more than one strategy for their online forex trading. For example, they use SMA and apply other indicators to support their assumptions. These indicators work as a filter for them. You may formulate your online forex trading strategy based on technical analysis to find out support and resistance levels of the market. The market tends to trade above the support levels and below the resistance levels. If you find that a support or resistance level is broken, the market will then follow through in that direction. Therefore, if your online forex trading strategy helps you in finding out these breaks you can invest in the direction of the market.
The best way to be a successful forex trader is to study and get experience. There are many web sites with free articles, seminars, forums, which can help you in developing your own forex trading strategy. Simple logic and rational thought process will strengthen your strategy and earn huge profit from the trading. Few tips for preparing your strategy will be:
· Always trade with the trend.
· Never risk all your trading capital in a single trade.
· Follow strict discipline to limit your loss.
· Whenever you are in doubt, get out of the trade.
In this highly volatile and liquidated forex trading market, a strong strategy, which is free from any emotions, will ensure high profits for you.