Forex trading strategies are an essential part of your Forex trading success. The importance of a good trading strategy cannot be overemphasized.
The term “forex trading strategies” is often used in place of the term “forex trading systems”. This usage is not incorrect, but in reality a strategy is so much more. While a forex trading system contains the logic that signals you when to trade, a forex trading strategy may contain numerous forex trading systems.
A strategy will outline when a new trading system is to be traded. This is typically done once your equity has reached a certain point. Your equity must increase enough to accommodate a new forex trading system. Here is an example.
Let’s say you started out trading a system (Forex trading system #1) that requires $10,000. Let’s also say that you have been successful using that trading system and now your account equity has grown to $20,000. At this point your forex strategy will tell you what you need to do next. Your next move may be to start to trade Forex trading system #2 and that this trading system now requires $10,000 as well.
At this point you have $20,000 in trading account equity and are trading 2 forex trading systems, system #1 and system#2. As your equity continues to grow, say to $40,000, your strategy may dictate that you then trade 2 contracts of trading system #1 and 2 contracts of trading system #2. When your equity grows to $60,000 your strategy may dictate that you the trade as follows:
2 contracts of trading system #1
2 contracts of trading system #2
2 contracts of trading system #3
Forex trading strategies move you beyond trading a single trading system or trading a single foreign exchange currency pair. A strategy is more all-encompassing and designed to help you build equity through trading a portfolio of currency pairs and trading systems.
Forex trading strategies are also more complex than forex trading systems because they must factor in the interaction of the trading systems with one another. This is important because the correlation of forex currency pairs must be considered. Also the correlation of your forex trading systems cannot be ignored.
Formulating effective trading strategies takes a good bit of expertise. Skills such as evaluating forex trading systems and correlation analysis are essential for success.
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