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Forex Strategy

By: EconomyWatch Date: 23 July 2009

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

Of the countless investors opting for the forex market as an alternate source of income, only 5% are able to realize profits. This success ratio reflects how people give little thought to planning before stepping into the world of forex trading. You can improve your chances of success by following a good forex strategy.

Forex Strategy: Basic Characteristics

A forex strategy should be:

Easy: The strategy should be easy to understand and implement.
Effective: The strategy should help traders protect their investment as well as take advantage of profit making opportunities. It should also help investors change their working pattern without significantly impacting their profit potential.
Selected with care: While selecting, investors should be clear about their objectives, without which it is impossible to select the right strategy.

Forex Strategy: Most Popular Ones

The following are some of the basic forex strategies available to investors:

Stop loss order. This forex strategy enables investors to limit their losses. Through this strategy, one predetermines a price level beyond which positions should not remain open.
Buying on margin. Brokers offer leverage to traders, letting them trade with an amount higher than they have in their account. This strategy exposes a trader to higher risk as well. Hence, it is important to limit risks and be agile in identifying when one can enter and exit a trend.
Simple Moving Average (SMA). SMA is an average exchange value of a currency pair over a certain period of time and is usually generated automatically by a forex trading platform. According to this strategy, a trader should buy when the price of a currency moves above the SMA. Similarly, a trader should sell the currency if its price falls below the SMA. If used properly, this strategy represents a disciplined way of limiting risk, while also capitalizing on profit making opportunities.
Support and resistance. These are levels beyond or below which the price of a currency fails to move. These levels can be identified by studying past data of a currency pair. According to this strategy, a trader should trade below a currency’s resistance levels and above the currency’s support levels.