Having a solid trading plan and the discipline to follow it can minimize losses and maximize profits. Because of the unpredictability of the forex market, a trader is urged to consider every possible trading scenario that can occur in his trading plan.
Trading strategies can be based on concepts of technical analysis and fundamental analysis and will always incorporate money management. Adhering to your objective strategy through self discipline is the only way to avoid this problem.
Develop your trading strategy based on an edge
A trading strategy is a set of rules that help a trader make decisions in the market. It takes away subjective guessing.
A strategy is based on an edge and the rules identify when that edge in the market is present.
A trading strategy answers the following questions:
- What are the best conditions in order to enter the market?
- What are the best conditions in order to exit the market, i.e. where are your stop losses and profit targets?
In a nutshell, your strategy should consist of an entry, a profit target and a stop loss.