A Guide to Building Your Own Forex Strategy

More than funds are at stake when trading currencies, you are putting your reputation as a well informed decision maker on the line. Credibility is without a doubt your most valuable asset, so how does one secure credibility in the Forex market? By developing a winning strategy and sticking to it. Let's explore how we can accomplish this task, we'll simplify it by breaking things down into 3 easy steps in this easy to read article.

A trading system is a simple way of saying, how does a forex trader decide when to enter or exit the market and how much leverage should he use on each trade. There are 3 elements to a successful trading system. Leverage is a key component, so to also are Entry & Exit timing. These three elements alone are what we look at when assessing the quality of a Forex trading system.

1 - When to enter the market

The quality of your system is going to be reflected by the amount of time you as a professional Forex trader are willing to commit to trading your system. For instance, if you are generally available during the hours of 8am to 4pm then it would not be logical to develop a system which enters during the hours of 2am to 6am. Deciding on which hours you are willing to commit towards trading Forex will determine the quality of trades you make on a regular basis. The quality of your every day life is going to be influenced by this as well. Needless to say there are countless traders who spend nearly 24 hours a day watching their monitors in fear that they will miss the next big move. This is not how I would describe a high "quality of life" and this is definitely not the path towards becoming a reputable trader. If you have experienced chart gazing for more than 10 hours straight then you know what I say is true. Your lifestyle should be one where you are able to enjoy the pleasures of living a full and abundant life without having to constantly look at the clock.

2 - Exiting the market

Once you have entered a trade you should already have an exit strategy in place. This strategy on when to exit can include variables such as duration: I will not stay in any position for more than 2 days regardless of whether I am in a winning or losing position. Your exit strategy may also be price based: I will close this position out when a certain value of profit or loss is achieved. A combination of the above two mentioned criteria can be used. A number of other exit strategies including the use of technical and fundamental indicators can also be used, however the important thing to keep in mind is that an exit strategy must be in place before ever entering into a trade. This is not improvisational trading and your goal is not to constantly invent and reinvent the proverbial "traders wheel" so to speak. If your goal is to become a reputable Forex trader you need to make a plan before you enter the market and dedicate yourself towards sticking to it. If you do this you will be well on your way to achieving your goal.

3 - Use proper leverage

No table can stand on 2 legs alone, leverage is undoubtedly the essential 3rd leg to any successful trading system. As a Forex trader knowing how much leverage to use on any given trade can be the life or death of your account. The level of leverage you want to use should always be predetermined long before you enter the trade. For instance many fall into the trap of adding or decreasing their position size at the spur of a moment simply because they have the fleeting feeling that something good or bad is about to happen. These two actions when carefully planed ahead of time may be sound in strategy, however it is essential that your trading rules are written before your trade is placed. It just cannot be emphasized enough, emotional trading will lead to disaster. It is incredibly easy to be fooled by your emotions, we are all expert rationalizers whether we know it or not. Being aware of what your system is and how it should be traded will help safeguard you from the changes your emotions may attempt to exert on your system. If your emotions succeed at adjusting your system even in the slightest, your entire strategy could go out the window. By creating a plan which includes when to enter, when to exit and how much leverage to use you will become free to execute your trades without the fear that your emotions will get in the way. Professional fund managers use these techniques to make million dollar decisions every day.

The benefits are far reaching, once you have learned to stick to your plan you are free to begin experiencing the emotions that come with being a successful trader. Emotions are not your enemy, they only become your enemy when you allow them to influence your strategy. Our goal is certainly not to turn man into machine, or to remove that part of the human spirit that allows us to experience pain and pleasure; the goal of every Forex trader is to create a lifestyle which promotes an inner sense of accomplishment. Putting these 3 keys into practice will evolve your trading style and help you to achieve the level of success which a few international elite traders enjoy on a daily basis.