Lesson 4: Making That First Trade

Forex Trading Strategies and Best Practices

Overview

  • The idea of listing your strategies or trading guidelines, is to create the equivalent of a "policies and procedures" manual for trading.
  • Defining your strategy before you enter into a trade helps prevent emotion taking over your trading.

Trading on the Technicals

  • "Technicals" refers to the use of charts and graphs to identify potential buy and sell levels.
  • Traders who employ these tools are often called "chartists" – see Lesson 6 – An Introduction to Technical Analysis for more information on technical trading.

Trading on the Fundamentals

  • Trading on the fundamentals – also referred to as trading the news – is the study of news events and economic statistics to determine trading opportunities.
  • Referred to as fundamentalists, these traders pay close attention to changes in economic indicators such as interest rates, employment rates, and inflation. See Lesson 5 – A Primer to Fundamental Analysis for more information on fundamental trading.

Trading When Indicators Conflict

  • It is a fact of trading that there will be times when you will face conflicting information as you evaluate the likely future direction for a particular currency.
  • When faced with contradictory information, you have two options; 1) formulate your own opinion as to the direction the exchange rate will likely go, or 2) simply refrain from dealing in that currency pair until a clearer picture emerges.

Trading Discipline

  • Successful trading requires the discipline to stick to a strategy.
  • No matter the market direction, the worst thing you can do is act rashly and without thought - this only exaggerates losses.
  • If you have entered into a trade based on the best analysis available to you at the time and the trade still goes against you, it may be best to cut your losses and move on.
  • While no trader likes taking a loss, randomly buying and selling on every market fluctuation is not a trading strategy - it is however, a sure way to lose money.
  • While we are on the topic of losing money, incorporating stop-losses into your orders can help protect your investment. See Stop-Loss Orders later in this lesson for more information.
When in Doubt, Don't

When conflicting information prevents you from determining a clear direction, avoiding that currency pair for the time being is a perfectly valid strategy.

Lesson 4 Topics

This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance.

Trading FX and/or CFDs on margin is high risk and not suitable for everyone. Losses can exceed investment.