Little did I know that the Forex exit strategy is just as important, maybe even more. Although, traders will argue which is more important, you need to understand that they both are. Just make sure they are planned and part of your trade plan. It’s true that a successful trade entry can greatly improve your trading win-rate percentage and overall profit. Thus, the reason why most traders pay more attention to the entry and not their Forex exit strategy.

Never Over Look Your Forex Exit Strategy

Here are some important elements to your exits strategies that you must consider. Hopefully, they will help you design a better exit signal and give you a better understanding to the importance to your overall plan.

No.1 – Know What Your Forex Exit Strategy Is Going To Be

Before You Enter The Trade.

As I mentioned before, make the exit part of your overall trade plan. Never enter a trade without planning your strategy for your exit profit target or your stop loss.

No.2 – Consider Multiple Forex Exit Strategies.

You can design you trade plan to incorporate multiple exit strategies to try to gain as much profit as possible. Especially, if the market is trending nicely in the same direction. This strategy is when you would take profit at pre-designed levels as the trade is working I your direction. For example, you would exit 1/3 of your position at 20 pips profit. Another 1/3 at 40 pips profit and the remaining 1/3 at 60 pips profit.

No.3 – Always Initiate A Stop Loss As Part Of Your Exit Strategy.

A stop loss can also be your exit strategy if your trade does not go in your direction. It’s there to protect your trading account and will allow you to trade another day. You can also incorporate a “trailing stop” as part of your Forex exit strategy. For example, if the trade was in profit 20 pips, you could move up your stop loss to break-even. Which is the price at which you entered the trade. Once the trade was in profit another 20 pips you could move the stop loss up 20 more pips from your original entry price. This would guarantee that if the price came back the other way against your position and hit your stop loss, you would still have a profit of 20 pips. You can keep doing this for as long as you want if the trend is really strong.

No.4 – Stick To Your Forex Exit Strategy As Per Your Trading Plan

One of the biggest obstacles a trader faces is sticking to their pre defined trading plan. There were so many times when I started to trade that I didn’t stick to my plan. Especially when the trade was going in my favor. I soon realized how fast the market can be and quickly turned against me. I knew I should have put in my profit targets and should have exited the market with a profit. But my lack of discipline and experience took the better of me. What could have been a winner, turned into a looser because I didn’t put a stop-loss either.

This was a huge realization, which finally took my trading profits to the next level. I learned to trust my trade plan and follow it with discipline.

Let’s look at the second of these things a little more closely. The reason you need a Trading Plan is to have some sort of rule sheet to work off. If you don’t have rules, you won’t be a good trader – it’s as simple as that.

When trading, it is so human and easy to bend the rules a little and say things like ‘I’ll get out when the price hits 1.593’ and then a few minutes later you’ve changed it to ‘1.594’. If there is no gauge as to what you need to do, rules get bent or broken and money gets lost, so with regard to trading, it’s the money that ‘counts!’

A Trading Plan is flexible and geared to what you want in trading. It starts off being only an approximation to your trading style and as you ‘refine’ it, it becomes more accurate and definable. Just as a business (Which is what you trading is) has to forecast profits in years ahead without knowing any data, you will need to define some Trading Plan entries in the same way and then refine them when you have more information.

The first thing in a FOREX Trading Plan may be: Why do I want to be a trader? – The so called ‘Mission Statement’ Be relaxed an informal about this, e.g. ‘because I want to be more in control of my destiny by doing something I enjoy which has limitless financial possibilities, rather than being ‘salaried’ and stuck in ‘The Rat Race’’.

Next, state your trading style and why you have chosen this: ‘I am a Day Trader to Swing Trader (Most trades lasting a few hours to a few days) and occasional Position Trades for long term opportunities.’

You need to state your strengths and weaknesses, not necessarily trading based ones.

Then your objectives, in the form of financial targets or goals: I want to make 30 pips per day, for 200 trading days per year, is good. It is however, better to state days in the future when you will achieve your targets: By 1st January 2011 I will have made $60,000 is also vague and a better way of expressing it would be: I will make an average of 30 pips per day for 200 trading days per year = 6000 pips per year at $10 per pip = $60,000.

Expressing targets in the form of goals is even better:

First goal, to be able to live off earnings from trading = $500+ per month consistently for 5 consecutive months out of 6.

Second goal, to increase to next level equating to a modest ‘salary’ = $2000+ per month consistently for 5 consecutive months out of 6.

Third goal is to achieve $10000+ per month continuously.

You then need to define what markets you will trade and at what times of day you will trade them. It is also good to say why you are trading these particular markets for instance.

A little comment on what trading platform and software you use and also which broker would make you plan more complete.

Next, your trading routine: List your pre-market activities (This may be research into news, homework on charts, looking for good entry points etc.), activities during market open (How you go into a trade, how you manage it and how you will get out!) and post market activities, such as logging any trades completed.

It is important to state your trading risk levels (‘I will risk only 1% of my account on any trade’) and where and how you will enter stop losses. Also state your trading frequency – The maximum amount of trades you will place in any time period.

There are many Trading Plan ‘templates’ available on the Web. Try and find one that suits you. Then condense your plan onto one or two pages of A4 and print it out, so you can refer to it. If you are new to this, you will realise that you are constantly changing and ‘tweaking’ your plan, but as time passes, the corrections will be few and far between!

Tip 1 Cut Your Trading Frequency

Most traders simply trade too much – they think the more they trade the more chance they will have of making money. Others think if there not in the market they may miss a move and finally, they try trading intra-day which is simply never gong to work.

In forex trading you don’t get rewarded for how often you trade – you earn your money for being RIGHT – That’s the only criteria to judge your trading performance on and most traders forget this

Consider this:

Trading is a game of odds and the really good risk/reward trades simply don’t come around that often and in forex trading you should only concentrate on them.

To give you an example of how powerful cutting your trading can – I know several traders who trade only a few times a year and clear 100 – 200% in profits! If you cut your trading frequency down, you can then add in the next tip to make huge gains.

Tip 2 Risk More

You will hear a lot of Forex traders tell you that you should risk no more than 2% per trade – RUBBISH!
If you are trading a small account you will never make any money doing this.

Let’s say you are trading $10,000 – 2% is just $200!

Well, if you consider risk goes with reward, you are not likely to make much risking that. Don’t forget the fact you risk 2% on low odds trades, give you less chance of success than if you risk 20% on a good high odds trade. Many people think their taking low risks – but in reality they are setting themselves up to lose longer term. Risk is related to the odds not how much you risk.

Keep in mind you are taking a calculated risk at the right time and risking more, is simply the only way you will win big. So how much should you risk of your account size? As rule of thumb do 10 – 20% of your total account.

Tip 3 One At a Time

Diversification is another buzz word that is supposed to restrict risk – but if you spread your trades around, you simply dilute your profit potential. Don’t fall into this trap. Pick the best trade you have and load it up with as much as you can afford and hit it hard.

BUT
You are probably thinking that the above is not commonly accepted wisdom and that’s correct – but keep in mind the majority make no real money, so being in the minority is no bad thing here! Today, there are many who will tell you that you can trade forex with low risk – no you can’t. If you restrict risk to much you have no chance of winning. It’s an investment fact:

The bigger the risk the bigger the reward.

If you learn to take calculated risks when the odds are in your favor you can pile up huge gains longer term and that’s what most people want from forex trading.

Finally, the above is very time effective: You are trading only great high odds trades so you are not trading everyday or monitoring levels constantly 15 – 30 minutes are all you need to build huge profits!

Trend analysis helps distinguish emotional decisions (“I think it’s time to sell…”) from analytical decisions (“I will hold until the current rising trend is broken”). Trend analysis will also discourage you from going short in a bullish market or going long in a bearish market.

What is a trend

A trend is simply, the persistence of a security’s price to move in a particular direction. A trend can be bullish, bearish or flat. Also, a trend is in effect till it is reversed.

Markets are either bullish, bearish or flat. However markets never go up or down in a straight line. There are always corrections (in bullish markets) and pullbacks or relief rallies (in bearish markets). By identifying trends and reversals, you can enter and exit trends at the correct time and earn excellent profits with minimum risks.

Sentiment drives the market

The price at which an investor is willing to buy or sell depends primarily on his expectations. If he expects the security’s price to rise, he will buy it; if the investor expects the price to fall, he will sell it. As any trade requires a buyer and seller, it automatically means they have entirely opposite views on the price. The collective majority of market participants ultimately decides the direction of the price and the market. Finally, whichever you look at it, price is matter of demand and supply and nothing else.

Fundamentals don’t matter

Greed and fear is what moves the market up or down. If the markets are bullish, even a market with no fundamentals will rise and give good returns. But if markets turn bearish, then even market with good fundamentals will crash.

Price reflects everything

Price is a function of demand and supply and nothing else.

The price of a stock reflects everything about the stock. This includes analyst reports, economy, impact of crude and interest rates, govt policies, politicians and their antics and whatever you may care to add. Different people have varying degrees of access to this information and form their own perception (rightly or wrongly) – this ultimately decides the current price of the currency.

Since everything about a currency is reflected in the price, it makes sense to study price movements. In other words, “what is happening” is more important than “why it is happening”. Trying to identify the “why” is an exercise in futility. One can arrive at any number of reasons depending on how many “experts” you choose to listen to.

The beauty of technical analysis is that it applies to all time frames (intraday, daily, weekly, monthly charts) and across currency, equities, commodities (rice, gold, crude oil, aluminium etc).

Technical Analysis is not 100% accurate

Technical Analysis should not be used to make predictions because we never know the outcome of a particular pattern or series of events with 100 per cent certainty. The best that we can hope to achieve is a probability of around 80 per cent for any particular outcome; which means that something unexpected will occur at least one in five times.

Currency pair : USD/JPY, USD/AUD, EUR/JPY

Time Frame :  M15, M30, H1, H4

Indicator : ZIG ZAG, Parabolic SAR

Forex Trading Strategy zig zag and parabolic SAR

Entry :  Buy/Sell when the zig zag gives signal + Parabolic SAR dots appear.

Stop Loss : Put a stop loss Recent Low/High

Exit : Trailling SL recommended. Exit when Trailling StopLoss Hit.

Advantages: can give entry and exit rules, easy to use. it gives much more profit in Forex trading.

If you are looking to start trading in the foreign exchange market, or if you are looking to increase your profits, you need to have a full grasp of the foreign exchange market, how it works, and what drives it. Foreign exchange currency trading, also commonly referred to as forex currency trading, is the biggest market in the world. This market turns over more than USD1.5 trillion in a single day of trading – a value thirty times bigger than the volume of all equity markets in the United States.

Engaging and trading in the foreign exchange market will require doing constant analyses of the currency market using either a fundamental analysis approach or a technical analysis approach. TechnicalAnalysis A technical analysis approach is generally used when a trader intends to make an attempt at predicting the future movement of a specific currency pair. This analysis is mostly based on that specific currency’s performance in the past and involves studying the factors that can influence the price and movement of a currency.

These factors may include, but are not limited to, changes in Government, war, crises, and other world incidents that can change the supply and demand of the currency as reflected in the forex market. FundamentalAnalysis Fundamental analysis involves the measurement of the net of imports and exports from any one country and the recording of its potential impact on the flow of currency. This type of analysis is also known as current accounts.

Forex currency trading is a fast paced market, and a very fast growing one at that. Almost all industries are involved in forex currency trading – multinational corporations, banks, governments, financial institutions, retail traders, and other institutions can directly or indirectly get involved in the market. Another hugely unique aspect about forex currency trading is its lack of any actual physical location. The foreign exchange market does not have a central exchange. It is a 24-hour market and is simply an over the counter market which provides services to corporations, banks, investors, and individuals who are either buying or selling currency.

Forex trading typically begins in Sydney, and moves slowly around the world with the opening of other financial centers in Tokyo, London, and New York – all of which happen within a single business day. Several advances in technology have also provided forex currency trading a boost. Any individual interested in trading can set up a Foreign Exchange trading account without having to get involved with any bank and other trading institutes. He may simply do so through online forex trading websites.

A lot of tools are available for use in this fast paced world. So do your homework and start trading – and prepare yourself for an exhilarating ride.

Whether we like it or not, radical changes in forex exchange rates affect an individual’s or institution’s overall investment portfolio. If your holdings are all in US Dollars, you have chosen to hold the dollar and give up other major currencies. Indirectly, this makes you a currency investor. By investing in, and with, the US currency, then your portfolio becomes dependent on the integrity and value of the US Dollar. Without realizing it, this may have worked against you due to the decline of the value of the US Dollar against other major currencies. 

The FOREX market provides the investor a valuable tool in managing the effects of the foreign exchange risk by taking advantage of fluctuations in exchange rates. It is a means by which one can readily access this global market 24 hours a day and be able to hedge his/her outstanding US Dollar-based holdings. In a time when the speed of business increases on a daily basis, you need the ability to react swiftly. This change has created a condition that may leave investors out of the game without being aware of lost opportunities or erosion in their capital assets.

• heightened sensibility to a large and continuously changing number of factors
• accessibility to all traders in the major currencies;
• guaranteed quantity and liquidity of the major currencies;
• increased consideration for several currencies, round-the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open and extremely high efficiency relative to other financial markets.

This goal of this manual is to introduce beginning traders to all the essential aspects of foreign exchange in a practical manner and to be a source of best answers on the typical questions as why are currencies being traded, who are the traders, what currencies do they trade, what makes rates move, what instruments are used for the trade, how a currency behavior can be forecasted and where the pertinent information may be obtained from. Mastering the content of an appropriate section the user will be able to make his/her own decisions, test them, and ultimately use recommended tools and approaches for his/her own benefit.

Currency trading has a long history and can be traced back to the ancient Middle East and Middle Ages when foreign exchange started to take shape after the international merchant bankers devised bills of exchange, which were transferable third-party payments that allowed flexibility and growth in foreign exchange dealings. The modern foreign exchange market characterized by the consequent periods of increased volatility and relative stability formed itself in the twentieth century.

By the mid-1930s London became to be the leading center for foreign exchange and the British pound served as the currency to trade and to keep as a reserve currency. Because in the old times foreign exchange was traded on the telex machines, or cable, the pound has generally the nickname “cable”. In 1930, the Bank for International Settlements was established in Basel, Switzerland, to oversee the financial efforts of the newly independent countries, emerged after the World War I, and to provide monetary relief to countries experiencing temporary balance of payments difficulties. After the World War II, where the British economy was destroyed and the United States was the only country unscarred by war, U.S. dollar became the prominent currency of the entire globe. Nowadays, currencies all over the world are generally quoted against the U.S. dollar.

Forex trading day starts in Wellington, New Zealand followed by Sydney, Australia, Hong Kong and Singapore. Three hours later trading day begins in Dubai (UAE) and other Middle Eastern countries. In couple of hours they are followed by Frankfurt, Zurich, Paris, Rome… London is the last one to open in Europe and five hours later it is followed by New York, Chicago and finally the West Coast. The busiest hours are early European mornings because at that time major Asian exchanges are still open and European afternoons because at that time major US markets are open at the same time as Europe.

Therefore, wherever you live and whatever your work hours are you can always find some time to participate in forex trading as opposed to stock market where you are usually limited to the regular business hours. Another property of forex market that makes it an excellent trading instrument is use of leverage. Many beginning traders don’t fully understand the concept of leverage.

Basically, if you have a start up capital of $5,000 and if you trade on a 1:50 margin you can effectively control a capital of $250,000. However, a two percent move against you and your capital is completely wiped out. If you are a beginning trader you should not use more than 1:20 margin until you get comfortable and profitable and then and only then you can attempt to use higher margins. What does 1:20 margin mean? It means that with your $5,000 you will control a capital of $100,000.

Let’s say you are trading EUR/USD and by using our entry strategy you have decided to enter the trade on a long side. That means that you are betting that USD will depreciate against Euro. Let’s say current EUR/USD rate is 1.305. Again, if your trading capital is $5,000 and you are using 1:20 leverage you will effectively be exchanging $100,000 to Euros. If the current rate is 1.305 you will receive 100,000/1.305 = 76,628 Euros. If the trade goes in your direction the margin will work in your favour and 1% decline in USD will mean 20% increase in your start up capital. So if EUR/USD rate moves from 1.305 to 1.318 you will be able to exchange your 76,628 Euros back to $101,000 for a profit of $1,000.

Since your start up capital was $5,000 it is effectively a 20% increase in your account. However, if the trade went against you and USD appreciated 1% vs. Euro your account would be reduced to $4,000. That would not have happened as our strategy has built in hard stops to prevent such outcome. And the third and equally important property of forex market is the fact that trends in forex market last longer and are more clearly defined than in any other trading instrument.