Many new traders that jump into forex trading with the only goal being quick and high returns have a good chance to wind up losing, because they do not focus any energy on developing their forex trading strategies, learning about advanced forex trading systems and the importance of long term trading plans and steady capital growth.
The first step to creating a viable forex trading strategy is to determine what kind of markets a trader is comfortable trading. There are two fundamentally different preferences for entering forex trades. The choice for a trader is between being a forex trend following trader, or a forex counter-trend trader.
Trend following forex traders enter trade positions with the aim of profiting from relatively long term upward or downward trends. They develop advanced trading systems and forex strategies in order to identify price trends in the forex market.
Counter-Trend Forex Trading
Prices in the forex markets can move in three directions: up, down or sideways, and a counter-trend forex trader looks to apply advanced forex trading strategies in order to trade the back and forth movements of a sideways market which is also referred to as a consolidating or ranging market.
In a ranging, or sideways forex market the counter-trend forex trader will try to develop a trading system based on the concept of “buy low, sell high” or “sell high and buy low”..
Deciding Which Forex Trading Strategy Suits
To develop a solid forex trading strategy, a trader must decide what kind of forex trading system and style suits their personality, depending on psychology and what kind of market conditions the forex trader is comfortable applying their advanced forex trading systems and strategies to.
Selecting Advanced Forex Trading System Tools
The next step to developing a forex trading strategy, system or methodology is for a forex trader to select the advanced forex trading tools that they will apply for entering and exiting forex trades.
If a forex trader utilises advanced technical trading analysis systems they can use trend lines, support and resistance levels, and a range of advanced technical trading indicators available to determine when to enter and exit a forex trade.
A forex trader using fundamental analysis will factor what advanced economic indicators to apply the trading strategies based on the outcomes of economic news announcements to enter and exit a forex trade.
Once a new forex trader has laid out some advanced trading guidelines on how they will enter and exit forex trades, it is very prudent to trade smaller positions and to build up experience, before opening large positions.
It is important to understand that if a forex trader is consistently generating losses, instead of profits on forex trades entered, it means that something is wrong with the forex trading strategies, system, approach or tools applied. It may be time to stop trading and re-evaluate the trading system analysis that the forex trader is applying.
It is perfectly normal to lose on any particular forex trade, but it is a serious warning when there are consecutive trading losses and the trading losses add up to a large part of a trader’s account. Small losses are part any forex trading activity, as some trade positions will end as losses and others will be profitable. A good forex trader will ensure that profitable trades are bigger than losing trades and their advanced forex trading strategies and systems applied to their forex trading account is building equity.
It is well known that forex markets are changing all the time; therefore a forex trader will have times when they re-evaluate their forex trading strategies and trading systems applied, depending on the forex market conditions. An advanced forex trading strategy or system does not have to be set in stone; the more flexible and robust, the better.