Posted by forex at 4:44 AM
Read our previous post
1. Select a style of trading. There are a number of ways to trade the FOREX markets. How you choose to participate will be influenced by how much money you have to invest, how tolerant you are of risk, and how much time you want to devote to trading foreign currencies. The different styles of trading include:1)Scalping--frequent, very short duration (usually less than five minutes) trades that each try to eke out a a small profit.2)Day trading--positions are opened and closed within the same 24-hour period. Traders attempt larger profits per trade compared to those achieved by scalpers, but day traders also assume higher risks than do scalpers.3)Trend trading--positions are held for days or weeks, and are geared to profit from the primary trend of a currency.4)Carry trade--a technique to buy high-yield currencies and sell low-yield ones. Carry trades can last for months, and are centered on earning interest income, not capital gains.5)Derivatives trading--FOREX options and futures can be used as surrogates to or adjuncts of direct currency trading. Through proper hedging techniques, traders can control the amount of risk they undertake with this form of trading.
2. Devise a trading strategy appropriate to your trading style. Short term traders rely almost exclusively on technical analysis--the use of previous prices to predict future ones--whereas longer-term traders also use fundamental analysis, which is the effect of economic and political events on the FOREX market. There are many technical analysis techniques that can be back-tested against previous trade data and refined through hypothetical trading. You should research the techniques that are reported to work and personally verify the claims before adopting any strategy.
3. Place protected trades. Disciplined money management requires that when you place a trade due to some signal from your trading strategy, always specify three prices: 1) the entry price--how much you are willing to spend on the trade; 2) the stop-loss price--how much you are willing to lose on a trade before closing out the position; and 3) the take-profit price--the amount of profit you require before partially or fully closing out the position. The closer you set your stop -oss price to the entry price, the more likely you are to be stopped out. This is the fundamental trade-off between profits and safety, and each trader must personally work out a satisfactory balance.