Home > Finance > Importance of chosing a good forex trading strategy

Importance of chosing a good forex trading strategy

100 Views
forex b684fa3a

FOREX is an abbreviated form of the phrase “Foreign Exchange Market.” When someone talks about FOREX, he or she is generally talking about the market itself. For example, an American Dollar (USD) is equivalent to approximately 72 Indian Rupees (INR). The word approximately is important here because the value changes from day to day according to the country’s economy and many other factors.

One may choose to trade in the FOREX market. Meaning, one can buy a given amount in a given currency when its value is lower and choose to sell it when the value is higher. But it is very important to choose a good forex trading strategies. FOREX trading is risky and difficult to understand. However, this article will highlight the importance of choosing a good FOREX trading strategy.

What is a good Forex trading strategy?

A strategy is “good” when it gives desired results, which is usually to maximize profit. As stated before, the price of a given currency fluctuates with time according to many factors. These factors are difficult to judge and even more difficult to predict. Meaning, it is hard to know what factors will affect a currency's price, and it is even more hard to know when and how it will affect it. For example, take the 2016 US election. After Trump win the US election, the price of USD dropped drastically. This was easy to predict; however, experts also predicted that the price will continue to drop. But this was not the case. The USD gained some traction due to many FOREX investors buying into the currency, and then its value increased to its normal levels.

This example highlights the fact that even experts are sometimes wrong when it comes to FOREX trading strategies. Hence, one should be very careful while choosing his or her strategy. It requires a little bit of talent and a lot of practice to be perfect.

That being said, here are some of the most common FOREX trading strategies  for beginners that even some experts use:

  1. Define your goals and trading style: Know what you want, as with everything in life. Have realistic expectations about your very first trade and do not have lofty and high hopes. Start small and work your way up.
  2. Choose a good broker and trading platform: A trading platform can be anything, even an application on your smartphone. But for your first trades, you can go with a good broker who will help you navigate the complex FOREX market with good FOREX trading strategies.
  3. Know how reliable your system is: Test your strategies with demo account. Many websites and apps offer this service for free, which helps you learn the ropes and test your strategy.
  4. Positive feedback loops: A positive feedback loop is easy to understand. You make an action, wait for the result, and evaluate the result. Once you evaluate the result, you use the information you gathered to make your action more effective and efficient. You can use this type of strategy when you start to know what actions give what results.
  5. Keep a written record: Record all your transactions and practices. Know what transaction you made on what date and the effect on your finances and the market.

FOREX trading is difficult and unintuitive because of the variety of factors that come into play. But if you have the right FOREX trading strategy, it is much easier to navigate the market and rake in the profits

 

TAGS
Business Module Hub