Most traders use some type of strategy which they've learnt and refined, a strategy they believe maximizes chances of making profitable investments. Just like any strategy, a trading strategy is a set of rules which guide you into making certain decisions based on the data available. A strategy may be simple or complex, it may consist of a single rule, several ones or even many rules working together. For instance, you may decide to include in your forex strategy a rule to never invest in a currency you've not observed for a certain period of time, your strategy will probably include more rules which begin to apply only once this first, basic rule, has been met.
Developing, Refining and Fine-tuning Trading Strategies
Adhering to a certain strategy helps traders feel more secure and allows them to make decisions and boldly take necessary action rather than hesitate and make moves they feel unsure of. You may learn trading strategies from other traders first hand or from reading materials such as those found in our education section. Ultimately though, the strategies you follow must be adapted to fit your personality and trading habits.
Even if you start trading without a single rule to guide you, a trading strategy will begin forming from the moment you make your first trade. This is because trading strategies develop as knowledge and experience begin accumulating. Many traders start off making small, low risk trades, investing inconsequential sums of money just in order to get the feel of things, check out how certain products behave, how they react to market changes and how they themselves feel when closing deals at a profit as well as when closing unsuccessful ones on which money was lost. In order to adopt trading strategies which work best for you we suggest you read about strategies used by other traders, forex strategies, stocks or commodities trading strategies. Try out strategies you feel may be right for you and don't hesitate to make alterations so that they better fit your character, preferences and trading habits.
What is a Forex Strategy
Forex trading is very dynamic with deals being opened and closed relatively quickly. Perhaps the two most well-known forex strategies are "range trading" and "trend trading". Range trading calls for closely monitoring the way a certain currency's value changes as compared to another currency (most commonly one of the currencies will be the U.S dollar). Monitoring continues until a pattern emerges showing low values at which the "support" (demand) begins pushing value back up until the "resistance" (supply) stops the rise and a new down cycle begins. Once such highs and lows have been identified it is possible to time opening and closing deals so that the spreads are in our favor.
Some traders consider the "trend trading" forex strategy to be the exact opposite of "range trading". With the trend trading forex strategy traders work to identify a direction of long term change. For instance, the dollar slowly gaining value compared to the pound sterling, with 3,000 pips gained over a period of 12 months. Upon identifying such a trend and deciding it is one which has yet to exhaust itself a trader may choose to make a long term investment, monitoring it and cashing in at one point or another.
Veteran traders all have strategies which guide them. The secret is to adopt trading strategies which are right for you and to keep on refining them. After all, nothing ever stays exactly the same, a strategy which worked well today will not necessarily still do so tomorrow.