Establish a strategy before you start forex trading

Interested traders have a wide variety of reasons to get involved in forex trading. But all successful traders have one thing in common – a working strategy!

Market participants such as hedge funds, banks or investment funds pursue the goal of achieving large price gains. They do this by taking advantage of interest rate differentials between two currency areas or the economic upswing in one currency area. While there are certainly speculators who bet on the rise or fall of a value, there are not only these. There are also well-known companies that carry out transfers from one currency to another in large sums.

Before the trader starts trading forex, some thoughts about the right strategies are required. Without thinking about it, profitable trading is usually not possible. Only with a good forex strategy is it possible to trade foreign currencies. Currently, there are many Forex trading strategies, so every trader can find the strategy that best suits his goals. Although Forex trading is speculative and involves risk, there are different strategies.

Construct your own FX strategies

Those that are described as more conservative and those that can be classified as more speculative or even very risky. However, the trader does not have to use only the existing strategies, he has quite the possibility to construct his own strategies. Developing own strategies makes however at the beginning of the foreign exchange trade little sense, the Trader should have already some experiences with the trade of foreign exchange and likewise already some successes obtained.

Fundamental analysis and technical analysis

The majority of forex strategies are based on fundamental or chart analysis. Fundamental trading is considered to be conservative. This strategy is based on facts, figures and the various news that exist about the currency in question and can affect the exchange rate. For example, if the news reports that the economic situation in the U.S. has improved significantly, it is highly likely that the forex rate will rise. On the other hand, other Forex strategies are based only on the analysis of charts.

Basics for a successful Forex strategy

1. Many try their hand at Forex trading, some manage to make a lot of money, but others fail miserably. Now the question arises, what can be the reason for this?
2. Why is one group so successful, does a special skill have to be present or are the successful traders simply lucky? A few certain characteristics must already be present, in order to become a good and successful Trader.
3. A degree in business administration or mathematics is not required in any case, but if available, it does not hurt. Sometimes, unfortunately, one’s own ability is underestimated and many have the potential for forex trading, but do not trust themselves. Academics and bankers probably have it a little easier in the marketplace, but these professions are still not among the prerequisites.

Analytical skills and economic know-how

Especially traders who work with a technical analysis can acquire the knowledge themselves. For fundamental analysis, on the other hand, it is already very helpful if sound knowledge of economics is available.

However, what is very important is a good Forex broker. Only the right broker will ensure comfortable and successful trading.What requirements a successful trader must have, even experts do not agree. However, there is a consensus that the trader must have the right psychological attitude to trade. This attitude can be trained to some extent, but a consolidated personality must already be given in advance.

Advantages of forex trading with the right strategy

Undoubtedly, foreign exchange trading has some advantages. What makes it unique is its size and liquidity. This also makes forex trading very fair. It is actually impossible to push the price of a currency pair in a certain direction.

Compared to the stock market, the individual investor cannot manipulate the price. Moreover, currency trading makes the investor very independent. Independent from bond markets and from stock markets. The individual investor can open a position on a chosen currency pair at any time of the day or night through forum brokers.

Trading with small capital

Do you need to invest large sums of money in currency trading and on which currency rates should you speculate? The foreign exchange market offers the opportunity to move very high sums even with small stakes. It is quite the 100-fold of the employment attainable. Two factors that play an important role are the margin and the leverage. Margin is the security deposited with the broker. Depending on the selected leverage ratio, the trader can trade with a multiple of this deposited security. The higher the leverage, the higher the profits.

• On the other hand, the losses are also higher with a high leverage. Therefore, attention should be paid to a reasonable and, above all, appropriate leverage ratio. It should also be noted that if a loss of, for example, 50 percent is to be compensated, a profit of 100 percent is necessary.
• The Forex market is so interesting for many private investors because it is possible to speculate on rising as well as falling exchange rates. This means that the investor can profit not only on a rising but also on a falling rate.
• For example, if the investor believes that the dollar will weaken against the euro in the near future, the investor sells the dollar and buys the euro in return. Whether the investor ultimately bets on a rising or falling exchange rate depends primarily on the currency, of course.
• In addition, however, there are many other factors that have an influence on the respective currency rate. Going long & short means, depending on the opinion of the investor is bought ? go long or it is sold ? go short.