Trading Strategy Basics

Intro to Trading Strategies

Lets take it to the next level and learn how to start the process of finding the right strategy to trade. In this lesson we look at the broad aspects to building your own Profitable Trading Strategy.

The topics covered in today’s course are the following:

  • Margin Calls – A Deeper Understanding
  • Margin Agreement – Your Brokers Requirement
  • Fundamental Analysis – 6 Major US Economic Events
  • Technical Analysis – 8 Forex Trading Indicators

Learning Goal: What are the 2 Types of General Trading Strategies?

Level: Beginner

Margin Calls and Requirements

Since leveraging is basically borrowing money from the broker, you need to understand exactly how much risk your broker is going to allow you to take on trades. For example, assume you maintain a margin account and your positions dramatically fall before turning around and rising, whether or not you have sufficient capital, a broker might have closed out your position during the fall to decrease their  risk and potential loss. That trade could have been at or near the bottom of the price fluctuation & resulted in a margin call to you, and you could of lost substantial sums of money even though the price rebounded after the broker liquidated your position.

Opening a Forex account, regardless of the type, is similar to taking out a rotating equity loan or maintaining an equity account. The main thing that separates them from the Forex account is that you are required to sign a margin agreement with relation to your Forex accounts. The margin agreement acknowledges that you are trading with money borrowed from the broker and that the broker can insert itself into your trades as necessary to lower its risk and protect its interest. It also explains your liability relating to any losses. After you execute the agreement and deposit the beginning capital to the account you opened, you are ready to begin trading.

Basic Overview of Trading Strategies

Technical and Fundamental analysis are considered the two main forms of analysis in both the Forex market & equity markets. However, most Forex traders opt for using technical analysis. The following is a quick overview of both types of analysis and how they are used in Forex trading:

Fundamental Analysis – Using fundamental analysis in the Forex market tends to be somewhat difficult and is generally used to forecast long-term trends. There are some traders who conduct their trades on a short term basis solely on economic news releases.There are many fundamental indicators that can impact the exchange rate of a currency pair that are released at various times. Below is a list of the most important USD news releases you should be aware of:

  • Core Retail Sales
  • Core CPI
  • ISM Manufacturing PMI
  • Preliminary & Advanced GDP
  • Federal Funds Rate (Interest Rates)
  • Non-Farm Payrolls

These are not the only fundamental indicators you need to be aware of, there are also several meetings that can provide you with additional information that may also affect a market. These meetings usually focus on interest rates, inflation, and other causes of currency value fluctuation.

Sometimes a volatile market is caused by something as simple as the wording of issues such as the Federal Reserve chairman’s discussion on interest rates. The most significant meetings you should be aware involve the “Central Banks.” Simply studying the commentary can help Forex fundamental analysts to better understand long-term market trends and can also help short-term traders capitalize on these market conditions.

Should you opt for the fundamental strategy, you should keep an economic calendar on hand so you know when these reports are available. Your broker should be able to keep you up-to-date on this information as well. Below are a few links to all of the Central Banks around the World:

 

The website below provides a Free Forex News calendar that you should make a habit of looking at everyday.

 

When you start trading, we recommend sitting on the sidelines and not trading during these events. News releases can create volatility in the market 15 minutes before and after the news event is released. For advanced traders we also offer proprietary trading strategies for Forex News Trading used by Professional Forex Traders.

Technical Analysis – Helps Forex traders analyze price patterns from the past, much like their counterparts in the equity market. The only difference is that Forex markets are open 24 hours 6 days per week. In order to work with that 24 hour a day time frame, some types of technical analysis need to be changed or modified. The following is a short list of technical analysis tools that are most commonly used in Forex:

  • Price Action
  • Fibonacci Studies
  • Moving Averages
  • Stochastic Oscillator
  • MACD (Moving Average Convergence Divergence)
  • Candlestick Charts
  • Elliott Waves
  • Pivot Points

 

When it comes to developing a profitable trading strategy, it can take years of time to test and optimize,Forex Successful Traders reduces that learning curve through the FxST Trading System & education process. A great place to get started is in this Free Video Training Series.