Building a Forex Trading Strategy

Building a Forex Trading Strategy
Your chosen Forex trading strategy will drive the trading
decisions that you make in the Forex trading system. If you
are new or a novice to Forex trading systems, you will need
to develop an appropriate strategy that will evolve over
time. The following steps outline the approach to building
a Forex trading strategy that may be adapted and tailored
to your needs.

Develop a Forex Trading Plan - A Forex trading strategy
should never be considered absolute or complete. Part of
having a Forex trading strategy is incorporating a plan for
making adjustments to the strategy. You will need to be
able to make adjustments without completely revamping your
strategy. Though you may consider your trading strategy to
be more technical than fundamental or vice versa, you
should take advantage of any available market data in
making your trading decisions regardless of which
discipline it falls under.

Initiate a Forex Trade - You must decide on the currency
pairs that you which to trade and the number of units to
trade. You must establish either a buy or sell position.
You are then ready to initiate a trade as either a market
order or a limit order. A market order initiates a trade at
the current market price while a limit order permits a
trade to be executed when the market price reaches a limit
that is predetermined by you. As a safeguard for online
trading, particularly with limit orders, you should also
establish limits to take profits or stop losses. Take
profit and stop loss limits become particularly important
with online trading when your Internet connection is loss.
In the time it will take to reestablish a connection, the
market price may change and fall outside of any established
limits. Your trading platform may be able to calculate a
suitable set of limits. Limits are set as either the
percentage of the trading range or as distance from the
market entry price. If you have established an open
position, you may adjust these calculated values to suit
your needs.

Determine When to Exit a Forex Trade - If a trade moves in
favor of your established position you must evaluate the
move. In a long position, a move is considered significant
if it is in the range of 15 to 20 pips. In response to such
a move, it would be advantage to raise your stop-loss limit
above the market entry price and your take-profit limit by
about 20 pips or the number of your choice. If the trade
continues to move in your favor you should continue to
raise the stop-loss and take-profit limits. This aspect of
a trading strategy allows you to continue to generate
profits while the market is working in your favor. Unless,
for some reason, you feel you need to manually exit the
trade, you should not exit the trade until the market
reverses to trigger your stop-loss order. A take-profit
limit should not be used to signal an exit from the trade.
If a trade moves against your established position, you
have two options. You may manually exit the trade before
your stop-loss limit is reached or stay in the trade until
either the stop-loss or take profit limit triggers an end
to the trade. It would not be beneficial to lower the
stop-loss limit with the expectation that the market price
will reverse for a short period of time. While such a
reversal is possible, the odds of this type of market
action are low and your Forex trading strategy should not
depend on this type of anomaly.

----------------------------------------------------
Andrew Daigle is the owner, creator and author of many
successful websites including ForexBoost at
http://www.forexboost.com and
http://forex-trading-system.typepad.com , Free Forex
Training Resource for the Novice and Advanced Forex trader.