Forex trading is dependent on a well-based trading strategy which is the basic stone of any trading system. Having a firm strategy is the key to starting to earn money in Forex
How not to lose in Forex
Trading Forex without any consistent strategy is more than risky and it is considered as almost certain that any account traded without a well-based strategy will be lost. The statistics of the loosing traders are quite shocking which is due also to the fact that most of the traders do not keep their original strategy or just switch from one strategy to another. It is proved that 90% of traders lose their trading account in the first 6 months of trading.
- The strategies may be divided into three basic groups.
- Strategies following the technical analysis
- Strategies following fundamentals
- Automatic trading systems
The technical analysis means searching for repetitive patterns in the charts, searching for trendlines, Fibonacci levels,..
However, the technical analysis never forecasts unpredictable sharp currency cross movements due to economic or political news, natural disasters, etc. This is the situation when almost all of the traders are lost and that is why the use of stop losses is so important in any trading strategy.
And here comes the market fundamental analysis in which a trader watches the economic market news. The announcement time of most of the important news is known in advance and we also know the market forecast. If the forecast is much different from the announced value, then sharp movements on Forex market may be expected hitting sometimes more than 100 pips in minutes. This is the fact of especially increasing and reducing the cash rates for currencies.
Automated trading systems
Another possible strategy are automated trading systems. None of the Forex robots will be profitable forever. There will probably not be any perpetum mobile invented in this industry however most of the traders do not lose hope. Definitely, there are many successful semi-robots where the automated trading tool may watch our stop loss being invisible to the broker (the so called invisible stop loss) and it is the same with the take profit and any possible breakeven shifts on our trades. This is a very important tool, because a trader is not able to react to very sharp and quick market movements.
Due to all of these factors, before a trader opens his first real account, it is necessary to try out all of the above mentioned strategies into detail on a demo account, if possible, a trader should avoid trading one hour before and one our after the important (red marked) new announcements and strictly maintain the strategy defined in the beginning. Another important factor here is also money management which is an inseparable part of the trader’s strategy. It will be the subject of one of our next articles.