Current language:  English  

Forex Trading

Three Must-Use Forex Trading Strategies

Three Must-Use Forex Trading Strategies

There are countless different strategies for forex trading.  Some have to do with trends, some with the history of particular currencies and others have to do with time tables.

Some forex traders trade with the trends. Some traders bet against them.

Some traders know the GBP through and through and leave everything else alone.

Some traders make short-term trades where the forex web trader is only in the market for a few minutes or seconds. Other FX traders are in positions for weeks or months, even years.

One thing is for sure: despite all the variation in trading styles, the traders who take the forex game seriously and continue to sustain a living at this all believe in one thing:

The most important part of trading forex is preserving your capital.

Yes, it’s nice to make a lot of money. It’s even nicer to make it fast. The only thing that guarantees that you will continue to have a chance to make money and make it fast is if you continue to have money to invest.

In this vein, here are three particular strategies that help the trader or currency trading broker preserve their capital to trade another day. While most beginning traders are primarily concerned with entry points, the pros know that the exits points are at least as important, if not more so.

These are strategies that limit risk:

1. The Stop Loss

The stop loss is exactly what it says it is. The stop loss is an order to exit a trade at a predetermined point. It can be attached to any open order or position.

The idea behind the stop loss is to limit the amount of loss. Generally it is attached to a point just below the level at which the price broke out. It is when the price drops below the original break out point that the trade is no longer considered to be a breakout trade.

The stop loss allows you to enter an exit position so that you do not have to constantly monitor your trade and exits you from a failing trade with minimal loss, preserving your capital and allowing you to continue trading.

2. The Trailing Stop Loss

The trailing stop loss is similar to the stop loss but whereas the stop loss is a static point, the trailing stop loss moves in the direction that favors the trader's position.

This is a stop loss that is set to trail the trader’s position by a predetermined number of pips. It will always remain the determined number of pips behind the gain, increasing with the position and then you will exit the trade when the price turns and declines the predetermined number of pips.

This strategy not only preserves capital, but helps to ensure that gains remain intact.

3. The Profit Limit

You might be thinking, "Why would I want to limit my profits?" Of course you don’t.  However, the market can turn at any time and is highly unpredictable. 

The profit limit is used to ensure that you lock in your gains while the market is still going in a direction that favors your position.

The profit limit is simply a predetermined point at which you will exit a trade while the price still favors your position and before the market turns and erases your profits.

This strategy allows you to exit at a predetermined point so that you do not need to monitor the trade.

First Three Tools, Then More Tools

Let's say that you're a construction worker who is just starting out as an apprentice, but you aim to be a professional in short order. You wouldn't go out and buy the biggest, most expensive toolbox in the world, would you?

No, you would build your toolset by purchasing the basic tools first.

Forex trading is the same way. Before you can take full advantage of the more advanced FX trading strategies, you must master the basics. The stop loss, trailing stop loss, and profit limit forex trading strategies are three must-use basics that every FX trader needs in his or her toolbox.

Important Forex Information

The most important step in currency trading is finding the right broker; our forex experts can help. See our
reviews of forex brokers for more information.  arrow

The earlier you can start building a forex trading system that works for you, the better off you will be when trading the markets. Learn to build forex trading systems.  arrow

In order to understand when to sell short in the forex market, we must examine individual currency short selling strategies. Learn the strategy of short selling currencies.  arrow

While it is true that the bigger your position, the more you can benefit from utilizing the carry trade forex strategy, smaller investors can beneit, too. Read about the carry trade.  arrow