When you look at forex strategies you need to consider the different parts that make up the strategy. Once you know about the different parts of a strategy then you will be able to dissect it. You will have to do this to properly understand whether the strategy is right for you and if you want to change anything in the strategy. There are a number of different parts that make up the forex strategies that you need to know about.
The Core Theory or Belief
All forex strategies are based on a core idea, theory or belief about the market. It is important that you are able to determine what this is for your strategy. Range strategies generally work on the idea that the market will return to a set price over time. Trend strategies generally work on the idea that certain levels of movement in the market will create a trend that you can trade on.
Once you have determined what the idea is you need to see if you completely understand it. It is best that you understand the idea that is behind your strategy. You also have to be comfortable with the strategy and the idea that drives it.
What You Look for in the Market
The second part of the strategy that you have to consider is what you are going to be looking for in the market. All forex strategies are going to be looking for something in the market. This could be a chart pattern, a certain type of movement or the reaction to a news release. When you know what you are going to be looking for you can determine whether or not you are comfortable with this. There are some traders who are more comfortable with looking for a movement in the charts than a reaction to news.
The Forex Strategies Analysis
Once you know what you are going to be looking for you have to consider how you are going to look for this. This is more commonly known as the type of analysis you are going to be doing. There are two methods of analysis that a strategy can use. The first is technical analysis and the second is fundamental analysis. There are some strategies that will use one or the other. There are other strategies that will use a combination of the two analysis methods.
When you look at the analysis of the strategy you have to consider how much you understand. If you do not understand the analysis then you are not going to be able to implement it when you trade. You also need to be comfortable with the method of analysis that you are completing.
The Risks of the Strategy
All forex strategies will come with a certain level of risk. You need to determine the level of the strategy that you are looking at. Some strategies are low risk and others are high risk. The risk level of the strategy you are going to use needs to be compared with the risk capacity that you have. If the risk levels are higher than your capacity then you should not be using the strategy.
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