Building a successful forex trading strategy

Any forex trading system requires individual choices.

Trading requires thought!

To become a successful day trader you need a specific trading plan, as not all trading strategies fit the profiles of all traders. Each trader must develop his own trading strategy that matches their trading style and personality. Some traders rely solely on technical analysis while others prefer fundamental analysis, but many traders successfully use a combination of both to get an overview of the market and for finding entry and exit points.

Technical analysis relies on a key concept: Prices move with the trend. As stated by the dictum of all forex traders "The trend is your friend.". Movements in the markets lead to identifiable patterns that have been studied for many years, a thorough understanding of these trends and chart patterns provides a good basis for developing forex trading strategies.

There are many analytical tools available to understand market movements. The beginning trader can initially consider each of these indicators separately to obtain a working knowledge of their concepts and their application. Each tool tends to reinforce the other, so traders must then examine the trading signals generated by the confluence of several indicators.

Support and resistance levels are used in many forex trading strategies. The support means a lower price level is tested repeatedly, and when the price reaches that level, it tends to bounce over. Resistance means a price level above which prevents the course of moving beyond. Levels of support and resistance can contain prices in a trend channel for a certain period of time before a possible fracture "break-out.

Moving averages are also frequently used in forex trading strategies. All forex brokers provide moving averages in their trading platforms. The simple moving average (SMA) shows the average price of the market at a given time and over a period of time. Moving averages serve to eliminate short-term fluctuations in prices to give a clearer picture of price movements. Traders can plot a SMA to determine the direction of the trend and possible reversal of course. If prices move above the SMA, the trend is bullish, conversely, if prices move below the SMA, the trend is downward.

These two examples of forex trading strategies can be used individually or in combination. In practice, the trader must have a range of trading tools to examine market conditions and to confirm his analysis. If several indicators show that the market moves in a particular direction, the operator can then act with more assurance than when relying on a single indicator.

Similarly, fundamental analysis can be used to reinforce technical findings, or vice versa. Ideally, the trader must master several indicators to develop a forex trading strategy effectively.

The technical and fundamental analysis to determine entry points and exits in a trend, but the management of risk (money management) is one of the most important elements to be defined in advance. The trader must know the maximum risk it takes on each trade. It must ensure cut its losses quickly and let the trades earn maximum benefit from the trend. The first goal of the beginner trader must not make profits, but does not lose his money.

Keep a diary of trading allows the trader to remember the past trades and make an assessment on the effectiveness of the strategy. It is also useful for improving the system that must evolve with experience and market fluctuations.