Forex Trading Strategies

As with any financial instrument you choose to trade, there are countless forex trading strategies available to the retail trader. Each of these strategies has its advantages and disadvantages, and each will appeal to different types of traders. It is important to choose the trading strategy that best fits your style of trading, your risk tolerance and your trading schedule.

Some (but not all) of the more popular forex trading strategies are Fundamental Analysis, Technical Analysis, Automated Trading. There are day traders, swing traders, intermediate term traders, long term traders and absentee traders.

When it comes to Forex, I am a day trader. I have a small window of time each day in which to trade, so I look for opportunities that will allow me to capture small, repeatable profits in short periods of time. My goal is to slowly and methodically build my net worth. I swing for singles, not for home runs. My success rate is quite high because of the trading tools I use.

My risk tolerance does not allow me to stay in a trade for more than an hour or so, and I prefer to make trades that last no more than 5-10 minutes. I have never (and will never) make a trade that is left open over night. I no longer trust any market to control my money for that long, especially over a prolonged period of time during which I am not available to react to the price movement of my position.

Again, this is the way I choose to trade and the way I've become successful at it. My forex trading strategy is actually a blend of fundamental analysis, trend analysis and news trading because I incorporate all three of these factors into my decision making process.

First, I'm looking to choose a currency pair to trade that has an obvious imbalance in supply and demand (fundamental analysis). I can determine this imbalance by observing if there has been a price trend in place over the past several hours prior to my trading window (trend analysis). I then look for a news event (release of a major economic report) to create a deviation between the expected result and the actual result of that event to further fuel the trend (news trading).

When these 3 conditions come together, the probability of making a profitable trade are extremely high. These conditions indicate strength, so I call the blend of forex trading strategies I use "strength trading" because strength is really the basis of my trading decisions.

After analyzing my trades for the past 3 years, I've identified a pattern in the profitable trades I've made that occurs frequently and allows me to make successful trades using the style I described above. Using a unique currency meter that allows me to see the strength of all the major currencies with respect to each other on one screen, I can quickly identify the currency pairs that have the imbalance in supply and demand I look for.

Once I identify the pairs that I'm interested in, I look to see if there are any reports being released that will affect those currencies during the window of time that I can trade on that particular day.