Tag Archive | "forex trading strategy"

How To Be A Successful Forex Scalper

Being a successful scalper is about precision. As turbulent as it may seem to a new trader, scalping is a systematic method of trading on short time frames by taking a position and liquidating it in a rather short time span.

First question you should ask yourself is whether or not scalping is the right method for you. To answer that question you need to know what is required to be a successful scalper. To begin with, scalping is for someone who trades part time and finds it difficult to dedicate a lot of time to extensive market analysis. One of the most significant benefits of scalping is that a scalper’s market exposure is much shorter than that of a position or even an intraday trader, scalpers usually maintain their position for as little as one minute and 3-5 minutes at most, this keeps a scalper safe from large fluctuations in the price movement. As with any form of forex trading, it is of utmost importance that you possess the ability to stay committed to a specific strategy.

Ideal Conditions For Scalping
There are three important factor a scalper must take into consideration for using scalping as a successful trading method. These three factors are:

  1. Liquidity: You need to make sure that you trade securities with high liquidity. A stagnant market will make it hard for you to exit a position easily with a nice profit.
  2. Volatility: As a scalper you do not want to be in a situation where you may have to face sudden strong movements. As a scalper you must avoid highly volatile markets. A volatile market may seem an easy opportunity to trade fast but it is equally easy to pile up losing trades in a volatile market.
  3. Time: Each currency pair or a commodity has specific high liquidity time. For instance, the ideal time to trade EUR/USD pair would be when both New York and London markets are in session simultaneously.

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Reasons Why You Must Have A Trading Strategy

Forex trading is mostly about method and discipline, if you do not have a strategy or discipline to follow it strictly, you are exposing yourself to potential heavy losses that can wipe out your account sooner than you may think. Consistent profits without having a trading strategy in place are almost impossible. A very important thing to remember here is that no matter what strategy you use, you are bound to see losses every now and again, not even the most successful traders have 100% success rate. The key is to find a strategy that has a higher winning ratio and use it together with effective money management.

A trading strategy is a system designed with the help of a variety of technical analysis tools to determine your entry and exit points. Having a trading strategy means setting rules and parameters for executing a trade, following that strategy; you only execute a trade when the price movement adheres to the rules and parameters of your strategy.

A Good Trading Strategy
A good strategy is one that can produce clear signals without relying on outside factors to determine the validity of those signals. A good trading strategy would also insure that you have a risk-reward ratio that can keep you in profit zone even if you lose a significant percentage of your trades. Minimum acceptable risk-reward ratio is 1:2, which means risking $100 for a target of $200. This way, you’ll still be in profit even if you lose one trade after each winning trade. While 1:2 is acceptable, a good risk-reward ratio would be 1:3 at least, which is easily attainable with a good trading strategy.

Benefits Of Having A Trading System
Coping with a series of losses is the most difficult aspect of forex trading and this is where many traders are vulnerable to letting emotions into their trading decision. When you refuse to exit a losing trade, it’s your emotions that are keeping you from dealing with a loss; this may incur losses that would require a substantially long duration to revive from. This is why a trader must have a trading strategy that would dictate their trading decision in order to keep the emotions out.

Another benefit of having a trading system is that since a system is already optimized you do not need a lot of time to analyze the market before you could initiate a trade. Major trading platforms also allow you to automate the system to generate signals further simplifying your job and reducing the time required to execute a trade.

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So You Made a Mistake in Trading

So you have taken a loss. Okay, let us say you have taken an astounding loss. What now? It is not the end of the world. Now comes the part where you rise above the colossal mistake you have made in forex trading.

Owning up to it.

Know you have made a mistake and it is a fact. Stop blaming anything or anyone else. Owning up to a mistake is the start. The sooner that you realize that mistakes can be made and will be made, then the sooner will you get back into the game.

Learn from it.

Now what went wrong?  Got it? Good. Every mistake is a learning experience. Even if the reason you realized is your own arrogance, greed, or some flaw in your calculations or in your strategy, there is something to learn. At least you know what not to do next time. The forex market is not as unforgiving as you might think. It is a place of chance and opportunity.

Try a new path.

Now you know the flaw in your strategy, reassess if you would change that part alone or totally try a new path. Failure gives us the chance to look at our plan from afar, to give us a bigger picture. If the problem seems to be your fear of losing or a system that does not fit you, you can easily see a better and new approach once you open your mind to them.

Assess the effects of the mistake.

What are the changes from your previous situation? You may find that you are not that worse off after all. You might be overacting a bit about the situation. However, if the mistake really has far-reaching effects, then better to list them. This way, you can asses which effects can be remedied and which you can do nothing about. For example, you may have lost some investment, but if you can see chance of recovering it, you will discover if it is feasible or not by listing the pros and cons.

Systematize more.

Perhaps you lacked discipline before. Then now is the best chance to wake up and make a solid system where you will base all your decisions.  Learn the tell tale signs of the errors you have made so you can avoid them. Not only will a systematic approach make you more confident in making trades, but also lessen the work you normally do.

Rise up.

I know it is easier to say, but really best thing to do is be stubborn and get back in the game. They do not call forex trading the perfect marketplace for nothing. If there is currency dropping somewhere, then there must be a rise somewhere too.  There is always a chance for profit. Think that if your tread the balance of taking the right risks and being conservative at the right time, then success is not too far.

As a last thought, think about the fact that you are not alone. Somebody else somewhere has made a mistake before you. In fact, those who have tripped are probably the ones enjoying success now. They have learned their lessons from failure. They have shrugged off the stigma of a loss based on just one fatal mistake. Forex trading is difficult and challenging yes, but you are always welcome to try again and again.

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Forge Your Forex Trading Strategy

So you think you have the winning strategy for forex trading. Have you tempered and tested your winning formula yet? What you do not know is that there things you must take note before fully placing money on your strategy.

These are points tested and tried by those who have come before you. Understand the principles behind them and you may well be on your way to trading success.

Think twice before day trading.
So few get to be successful at day trading.  Most experts firmly believe that it does not work, because the volatility on such a short term varies a lot. You will be better off with a long term trading ventures where chances of profit are dependable.

Fundamental or technical?
Are you a fundamental or technical trader? Where does your strategy lay? It is hard to be both; combining the two paths and methodology are at times near impossible and at most difficult. It would be easier to start with a technical aspect of trading in your strategy. Not only would it take into account human psychology, but it will also be easier to work with.

Throw scientific theories away.
We all know forex trading needs and objective point of view. Nevertheless, when it comes with your personal strategy, it must fit with your assets, investments and plans. That is why it is difficult to rely on scientific theories alone. If there was truly a successful one, then why isn’t everybody a millionaire?

The objective part of the equation should be the trading signals you need to use in determining your next move. Now you see that there is balance in the tempering of your strategy.

You work in conjunction with your strategy. Are you both discipline din your tasks? Ego might get in the way of a successful and fair trade. What you think towards the market affects the design of your trading plan. Be fair and reasonable and you will profit, being over your head and thinking greedily will get you nowhere but down.

Lastly, do you have absolute confidence with your unique plan? Testing and back testing with present parameters is essential to get that confidence. You may even want to start with a small amount first, testing your strategy with as little risk as possible. When it works, resist the urge to change it drastically. Do not over complicate your details.

Hypothetical track records are unreliable.
These kinds of track records are just keeping up and expecting the norm of currency track records. This is simply just too naïve. Playing it safe will not always make you safe. Forex trading is much more difficult than choosing which currency record is safer. In the end, you have to make money right? Not make sure bets and not losing, but end up not gaining anything either.

Is your strategy designed to use stops conservatively?
Stops are there to your advantage. Use them. Most people place them immediately after a trade. If you think hesitate a lot, you will end up taking more losses.

Simple and work reasonable
The design of your forex trading strategy should be simple, and requires reasonable amount of input and work from you. Too complex a plan and you might lose sight of your own unique technique. Too much work will take its toll from you, clouding your judgment more.

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