A Great Forex Strategy

When trading forex, you will come across lots of strategys that people will offer you. You pay them a price or subscription fee, and they give you a strategy that will make you a million. Yeah right.

Well there is a part truth to this. You do need a strategy to give you the edge.

If your going to trade on the foreign exchange market, you will need to look first for the things you understand and can relate to. This will then become part of your overall strategy that you apply to your trading. It is quite hard to trade with a strategy that someone else has developed, as you will have very little understanding of why things don't work sometimes, as they inevitably will.

When you look at a forex chart for a certain currency,  you will able to point out a rough trending taking place for that particular currency, ie, its been going up, or its been going down. There will be certain places that the trend will hit, reverse direction, and then repeat again with an advance through the main number points of the trend. These are called the breakthrough points on a chart. They are like psychological barriers.

If we look at the example of the currencies GBP/USD and lets say it has broken one of the points, and then reached a new high. Its at this point that more often than not, there will be a quick sharp rise of between 8-12 pips will happen. Of course it might keep going up, but lets assume the worst, and consider that it will then drop back down. so you should get out of the trade soon after.

This is called the trade strategy. This is your rules that you stick to with the trading.

The second part is your money management strategy. This is where you stay alive by keeping as much money as you can. Once you reach your target, for our example, lets say a 10 pip increase, then take out 85% of your profit. Take your remaining 15%, and leave it in, with a stop loss just above your initial entry point.

You've now locked in your profit, and also protected the remaining cash you have left in the trade. If the trade quickly goes against you, you will be out of the trade with the help of your stop loss, and guarantee a small profit.

Its at this point that things can get fun, what if the trade really starts to rise? Well you might think you should have left all the money in! You can't trade professionally with this mindset though. You've made a small profit, you've protected your downside, now if the trade does start to rise quite high, you know that you will be able to make a good profit, and you can consider this your extra bonus. You won't make lots of money quickly with this strategy, but most important of all, you will stay in the game, and live to trade another day, along with a profit.

You can put a couple of variations on this strategy, but the important thing is to stick to something that will protect you, and minimize your losses.