Developing your Forex Trading Strategy


Forex day trading has evolved greatly since it first became available to the public and was greatly facilitated by the advent of digital platforms. Forex trading was first launched in 1975 as a means of trading stocks and currency, back when the SEC agreed that fixed commission rates – formerly set at 1pc of each trade – were not legal. This allowed brokers to offer lesser commission rates and opened up the market directly to amateur and professional day traders alike.

Different Forex trading strategies

There are a multitude of strategies for day trading in forex. Some are particularly unique to daily forex trading activity and others follow more general patterns of broker-driven trade activity. Essentially the driver behind each approach is to maximise profits, by making advantageous bets against micro price movements in currency indexes and exchanges. Often, traders will leverage additional capital – sometimes in large sums – to access greater funding to place their trades and potentially realise even greater gains (however, the reverse situation – of magnified losses – is the flipside risk of leverage).
When you look at your strategy, consider first your entry approach. You will want to select financial instruments that work best for day trading. Forex is ideal for this, as currencies are both volatile and liquid. Liquidity is important as it gives you the opportunity to buy and sell with a tight spread and the right price. Volatility measures price movements within a day and can lead to potentially bigger gains or losses, depending on the movement.

Decide your approach to risk and whether you wish to simply trade with your own money – particularly whilst you are building up knowledge and experience – or whether you plan to leverage your bets by borrowing capital. This approach is generally recommended for more experienced day traders. It is also wise to research the different approaches to market analysis, such as learning to read trend lines and candlestick charts. Another important approach is to stay up to date and current with the latest financial news, as this will provide you with vital broader context as well as data around market movements. Day traders can also use online platforms to see where orders are popular within the market and see how volumes are being affected during the day.

Stop losses

This is another important strategy for day trading. When you are trading on a margin, you accept risk, as price movements can be steep. However, by setting a stop loss, you can limit your potential loss by triggering a stop-point at a pre-arranged price, where the trade will cease. The trick is to pick a price that suits your tolerance and appetite for risk. This stop loss can either be set up directly via your platform, or it can be a mental strategy that you employ to guide your decision making. This approach can greatly lessen stress and worry and it is a popular approach for more experienced Forex traders. Novice traders are at more risk without this approach, as they often refuse to stop trading when they experience a loss and take extra risks to try to break even – potentially further worsening their position.




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