Forex Trading strategies guide
Forex trading strategy describe a system for a forex trader to determine when to enter or exit the market. There are numerous strategies that traders can pursue. Understanding and being comfortable with the strategy is essential. Every trader has unique targets and resources, which need to be taken into consideration when selecting suitable strategy. Forex trading requires to combine multiple elements to develop a successful forex trading strategies. Strategies that works best with your trading style.
Every trading startegy is based on market analysis including technical, fundamental or sentiment analysis. Technical analysis is the study of historical price movements to identify patterns and predict possibilities of future movements in the market using technical studies, indicators, and other analysis tools. Fundamental analysis focus on economic, social, and political forces that may affect markets. Sentiment analysis, which is a form of fundamental analysis is based on traders positioning in the currency market.
Money management strategies
The most important thing that traders don’t talk about is the money management. This is what makes a difference between successful traders and losers. If you trade without a money management plan, you are just wasting your time and money. Because nothing is going to work for you, even if you have the most powerful trading system in the world.
Money management: Position sizing
One of the most important component of money management is position sizing, what i mean by position sizing is the number of lots you are risking per trade. All forex brokers now offer mini lots as the default position size. The smallest value for a mini lot is approximately 1$. There are forex brokers that offer 10 cents for a mini lot which represent an opportunity for traders who don’t have bigger accounts. They can begin with 250$, and they still have chance to grow it. The size of your position depends on whether you have a standard or a mini account, and how many lots you are trading. This information is important to you because this will help you know how much money you risk on each trade.
The risk to reward ratio
The risk to reward ratio concept is what will make you a winner in the long run. Before you enter any trade, you have to know how much money you will win if the market goes in your favor, and how much money you will lose if the market goes against you. Don’t never enter a trade in which the profit is less than the amount of money you risked.
If you will risk 100$ for example, your profit target should be at least 200$, this is a risk to reward ratio of 1:2. Let’s suppose that you took 10 trades with 1:2 risks to reward ratio. In every trade you risk 100$. You won 5trades, and you lost 5 trades. So you will lose 500$.but you will win 1000$.so the benefits is 500$. This is the power of the risk to reward ratio, you shouldn’t think that you have to win all your trades to become a successful trader. If you can take the advantage of the risk to reward ratio, you will always be profitable.
Forex trading strategies guide
The importance of a Stop loss
All good methodologies use stops. A protective stop loss is an order to exit a long or short position when prices move against you to specified price. The stop loss insures against a usually large loss and has to be used in one way or another. An initial stop loss can be placed with your order on the trading platform; the trade will be closed, automatically when if the stop loss is hit. This type of stop loss will allow you to execute your trade and go spend time with your family or friends, this will help you to trade out of your emotion, because you know how much money you will lose if the market didn’t go in your direction.
Lot of traders use mental stops, when they enter a trade, they don’t place a stop loss, because they think that the broker will hit their stop loss which is not true. The reason behind using mental stop is the human psychology, humans hate to lose money. And if you don’t accept losing money as a part of the game, you will never make money in the market. Don’t never think of using mental stops, because you can’t control the market, you can’t be sure that the market will do this or that. Before you enter a trade, calculate how much you may win, and how much you may lose. Place your stop loss order. And your profit target. And forget about your trade.
Don’t ever risk money that you can’t afford to lose
From theory to practice
Calculating position size, Risk to reward ratio and setting stop loss are very important but not a quick tasks. Metatrader 4 doesn’t offer a quick way to calculate the position size so usually a trader needs to manually perform several calculations. Position size and Stop Loss should be known before placing an order. In such rapid moving market decisions need to be made fast. We need to help ourselvs with custom indicators made for this purpose. Position Size calculators will help to set Position size and Stop Loss quickly and accurately.
Free Position Calculator
Forex trading strategies guide:
With Lot Size Calculator you can:
– Set your risk management preferences
– Select the percentage of risk
– Configure Stop Loss and Take Profit by points or prices
– Set Stop Loss and Take Profit dragging lines on chart
– Immediately see the possible loss and profit
– Calculate the ideal position size to meet your risk management
– See the Risk Reward Ratio for a trade