Example of a Basic Forex Trading Strategy

Unfortunately, Forex trading does not contain any easily accessible secrets that will bring you instant success. You will soon realise that you can only develop profitable Forex trading strategies through your own hard work which will undoubtedly include the study of other people’s Forex experiences. Over the years, many traders have designed a vast number of Forex strategies to assist them in selecting entry and exit points for new trades.

Ideally, the key objective of most standard trading systems is to determine, as accurately as possible, the ENTRY and EXIT points of BEAR and BULL channels that extend for days, if not weeks. However, the designers of many Forex Robots and Expert Advisors tend to use Scalping Strategies, which primarily depend on very short time frames, but this subject will be explained later in this course.

In a broad sense, Forex Market tracks the Stock Market, which in turn, responds to global economic events. When the Dow Jones Index rises, the correlated EURO and GBP tend to rise whilst the USD and YEN usually fall. As you undoubtedly know, the Stock Market falls in response to bad news whilst it rises on good. Forex trading systems are designed using two main elements which are Fundamental analysis and Technical analysis. Ideally, both should be used to some degree or other when creating a trading strategy and an example of one is as follows:

1. Locate Economists who have a good track record in predicting events that affect the Stock Market.
2. Compare their fundamental forecasts against the technical charts of relevant currency pairs for synergy. This is best done using the hourly time frame or longer because the associated statistics are far more accurate than those of shorter time periods. In addition, they provide a much clearer overview of the larger picture as technical analysis essentially is intended to examine currency prices over a period of time to try and identify trends and patterns.
3. Any clear correlation, found during step 2, identifies possible ENTRY or EXIT points for a BEAR or BULL channel.
4. If 3 is positive, then enter a trade.
5. Monitor the trade for possible reversals and exit points using both technical and fundamental analysis.

Please note, though, that this basic system is incomplete and still needs to be integrated into a full trading strategy by including other important components such as money management.