How do we trade Forex?

Shared-by: Chee Wan (Msia)
Date: 19-May-2010

Topic: Trading Strategies

Info: Risk comes from not knowing what you are doing.

There are 3 criteria to determine which currencies to buy:

a) The currency must have relatively higher interest rate than other currencies. Naturally investors will want to invest in currencies for their yield. Hence those currency that has higher interest rate will be attractive to investors. As more investors buy into those currencies, they will appreciate.

b) The nation must have budget surplus. Budget surplus means that the nation is earning more than it spends.

c) GDP growth must be healthy and positive. Healthy GDP growth increases confidence to investment community and hence higher probability of capital appreciating.

After determine which currency to buy, we will check out the trend of the currency. The saying “the trend is your friend” is always true. We will use our Trend Identifying Strategy to determine the medium term trend of the currency pair. It is easier to ride with the trend rather than the go against the trend. Move onto next step if trend shows uptrend.

Next we need to find out the behaviour of the currency pair that we want to trade. This can be performed using our FX Behavioural Software. After finding out the past behaviour of the currency pair, we can use this information to generate buy / sell signals. We will proceed to next step when the signals show buy.

Identify the support level for the currency pair. We will always buy near a support level. If the current price is far from support level, we will wait for better entry level.

Finally we will determine where is our stop loss and target loss. Make sure that we do not risk more than 2% of our capital for each trade. All predictions are a matter of probabilities, not certainties. Hence all trading decisions must come with managing losses. By risking only 2% or less for each trade is our way of managing losses.