Tuesday, February 9, 2010

How to build a good forex strategy

Each forex trader must have his own strategy, we can’t rely all the time on others strategies and forex signal, other FX traders are not better then us; we can develop more profitable techniques. In this article I will give you some tips to follow while developing your currency trading strategy.

First of all be simple as you can; Forex trading is not simple and it needs good concentration that’s true, but the good news is you can make profit by following simple techniques and stick to it. Don’t use complicated economic indicators; indicators describe the market and do not predict it.

Second, develop a strategy which do not rely on news release, you can do that by closing a trade before a news release or open it after a news release, and by this way you will not be stopped out because a report came worse than your expectation.

Combining the second and third rule we will have the following scenario: I see a currency in a downtrend (or uptrend) and I am sure of the trend, but the RSI is under 30, and after a while a report will be released, so what I do is wait for the report to be released.

At release time we will either see the currency going down very quickly and we will miss the chance to enter into a very profitable trade and it is not a problem as long as we don’t loose pips, OR the currency will go up, in that case the RSI is no more oversold, so we identify a good entry point to enter a short trade. Forex is not so bad and it always gives us new chances and always tells us to enter or exit but we must read well the signs and forex signal.

Fourth, the most important thing in foreign exchange trading is the entry point; good entry point leads us to profit, bad entry point leads us to loose. You probably hear a lot of traders telling you do not trade against the trend, and that’s right but it is not enough, you must know where to enter a trend , timing is the most important, so where to enter, I will tell you where I enter. For example, let’s assume that EUR/USD major trend is down and I want to enter a short trade. We know very well that currencies move in waves


So most traders see in wave [A_B} a good opportunity to sell but it is too risky for me and it has a good probability to stop me out, if I enter at point [B] I will be stopped out, but If I short at point [C] I will be riding the trend from the beginning and make very good pips.

At point [C] the currency is no more oversold and probably at point [B] a report has been released and caused a retracement to [C], so at [C] I will enter the corrective wave. With this technique, I will have a 95% chance to hit my target and the spread will be very tight. You see, forex gives you many chances, you must change your way of thinking a little bit and see trading from a different point of view and have our own forex signal.