Trading Forex online is not simply about buying low, selling high. Simplified, the aim is to identify an value where few other people or trading robots see it, or spot when a currency is overvalued.  When people think of Forex strategies they usually imagine a set of rules that are applied to a currency.  While this is true, you seldom actually see a list of bullet points.

Forex strategies usually take the form of software add-ons for your trading platform.  This makes it really easy to simply switch on and go make a cup of coffee while you wait for your trading robot to start making you money. But before you do this, you need to have a thorough understanding of what your trading strategy is doing, and how it works.

The three main things that an effective trading strategy will do are:

1)     Identify entry points before anyone else

2)     Identify exit points that secure maximum gains, and

3)     Prevent you from identifying false signals as real ones

If you want to trade manually, the rules are the same. You will need to devote more time and attention to the task, but the returns are potentially greater.  There are four steps to developing a Forex trading system, but some of the steps can take you several months.

1) Choose a Time Frame

Decide if you want to be trading short trades (5 to 30 minutes), which requires you to sit at your laptop for hours at a time, or whether you want to trade longer durations, such as several days.  This would let you check your trading platform only once or twice a day.

2) Choose Your Tools

If you’re developing a strategy, you’ll need to know which metrics and statistics you are going to use to identify signals.  Give this plenty of thought, and make sure you understand everything you are using fully.

3) Choose Your Currency

Pick a currency you know well already, and make a note of its active trading times, to decide if you’re prepared to be awake when it is trading.

4) Fine Tune Your Tools and Tricks

Any strategy will be constantly evolving and changing to adapt to market conditions.  Don’t be afraid to exchange one tool for another, or use different metrics to understand the data in a different way.