Currency Trading Strategies

Currency trading strategies are numerous. Explanations for some can be found free online, while others form part of complex systems sold for substantial fees. Good currency trading strategies are certainly worth what they cost.

But right now I want to talk about currency trading strategies in a similar way to any other business strategy.

In business, when you plan your strategy you follow a process of answering questions about your business, where it is now, where you want it to go and how you'll take it there. The same steps apply to setting strategy for your forex trading business --- here are three questions to answer as you begin to set your currency trading strategies.

What currency pairs will you trade?

This is a decision you make only after careful study of the various currencies traded. Some pairs are so volatile that their exchange rates vary many times in one day (called intra-day), while others remain fairly steady. As in any other type of market trading, volatility usually means more risk if you're not on top of things, but it also can mean more profits if you are.

One of the terms you'll hear regarding forex trading is "pip", which stands for percentage in points. A pip is the smallest price increment in forex trading. In the forex market, you'll see prices quoted to the fourth decimal point (except for the Japanese Yen, which is quoted to the second decimal point). As an example, Europs to U.S. Dollars (EUR/USD) could be bid at 1.1915 and offered at 1.1918. In such a case, the "spread" (or difference) is 3 pips (1.1918 less 1.1915).

So which pairs are most volatile? Ask that question of three forex experts and you'll get three different answers! But here's a guideline. Currency prices are often affected by economic indicators, both in their own and other countries, and any pair is affected 50% by each half of the pair. So in EUR/USD, for example, you'll be affected 50% by the Euro and 50% by the U.S. Dollar. Since the Euro is affected by economic indicators in all the countries that use it as currency, it tends to move around a lot. For this reason, EUR/USD is often considered one of the most volatile pairs.

Click Here for Two Killer Currency Trading Strategies

How long will you stay in a position?

This will depend in part on your answer to the first question, of course. In highly volatile pairs, you may want to be in and out of a trade in minutes! Of course, to do that you'll need to be on top of things all the time. You can do this by being in front of your computer full-time and watching the market yourself, or you can make use of forex robot trading .

If you don't want to use robots yet (but you shoudl at some point) and you can't devote yourself full time to forex trading, you might want to look for less volatile pairs to trade for now.

What is your exit strategy for the position?

An important part of currency trading strategies is deciding under what circumstances you will exit a trade. There are two kinds of exit strategy: take-profit and stop-loss, sometimes known as T/P and S/L.

If you place a stop-loss order with your broker, you will set the prices at which you no longer wish to be in the trade because of the possibility of loss. If the pair reaches that point, your psotion automatically becomes a market order to sell.\

The take-profit strategy depends on what is called a limit order, or simply limit. When your designated profit point has been reached, you are automatically switched to a market order to sell. You would do this to ensure that you take a profit on a position in case it suddenly reverses itself and starts to be a loser.

This is a very basic overview of currency trading strategies. If you're ready to plunge further into specific currency trading strategies, here's how you can learn about two successful currency trading strategies.