What is a strategy?

Investment strategy - success in the forex market is not easy: it requires knowledge of its mechanisms, a lot of composure and time.

Whoever claims to generate profits on any currency transaction is not true. This market is very volatile by nature, and trade is exploited security deposit this variability is further deepened.

Therefore, we are dealing with an extremely "fast" and naturally erratic market. There is no doubt that in order to make a profit, the player must analyze both technical and fundamental data, and then make an informed decision based on his own recognition of the market mood and expectations. Probably the most important factor determining success is choosing the right moment to carry out the transaction. This choice may not be accurate each time, so you should not expect profit from each transaction.

Here are the basic rules, the observance of which increases the chances of winning:

Spend only funds on transactions that you may lose

The game on the forex market is speculative and can bring losses; it is also a fascinating occupation, and sometimes it can even lead to addiction. The more serious the consequences can be the loss of funds, the greater the degree of involvement and the harder the rational decisions. All the money you earn is equally valuable, but the money necessary to survive should never be used to play in the forex market.

Recognize the market

How is the market behaving? What are the trends on it? What are the ranges of fluctuations? Whether trends is it strong or weak, has it been on the market for a long time, is it a new phenomenon? The right picture of the market is the basis of success.

Decide what your time horizon is

Many players enter the market without thinking about when they intend to leave it - "it's all about profit". This is true, but entering the market the player must take the time horizon in which his predictions are to be met.

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It includes the adopted price evolution scenario. It is associated with the concept of market exit price. The player should decide how much he plays. He is not able to accurately predict the time of exit from the market, but he can decide whether his goal is "scalping" (scoring several points in one day) or whether he is playing in the long run. This decision has an impact on what fragments of the charts it will analyze. For a player performing multiple transactions on the same day, technical analysis of the all-day chart would probably be pointless, usually analysis of data from the last 30 minutes or a one-hour chart is sufficient. However, it is important to remember the time differences between individual trading centers on the global forex market: opening and closing hours affect market stability and liquidity.

Choose the right moment

Even if the player correctly predicted the market trend, it may turn out that he has wrongly chosen the moment of entering the market. Publication of the product and service price index (CPI), data on turnover in retail trade or decisions Federal Reserve The US may deepen this trend. Choosing the moment of entry requires knowledge of which factors and options should be considered. Technical analysis can be helpful in forecasting the time and scope of price movements, which we will look at a bit later.

If you have doubts - do not play

In case of uncertainty whether a given transaction should be carried out, it should be canceled.

Make transactions on reasonable sums

Full use of the margin gives the forex player a very high leverage. As a result, there may be very substantial gains or losses on the invoice. In most cases, the most reasonable strategy is to conclude transactions that even in the event of failure allow you to re-enter the market or continue playing on other currency pairs. In short, don't put everything on one horse.

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Do not enter into transactions if failure can eliminate you from the market. The size of the transaction usually does not affect the amount of the spread rate offered, so the client does not lose starting the game with small amounts.

Assess the market mood

Market mood is the predictions of his behavior shared by most of his participants. Therefore, the mood reflects what is happening on the market and will happen. In essence, it is about accurate trend prediction. Saying "the trend is your friend" summarizes the point: if you follow a strong trend, you win. Of course, one should not forget that the trend may break down at any moment. However, technical and fundamental data can indicate when it started and its durability.

Market expectations

These are the predictions of the majority of its participants regarding the publication of data. If the expected increase in interest rates actually takes place, the market usually does not respond with significant movements, because this factor has already been taken into account - the market is discounting everything; if the situation is opposite to the one expected, the market usually reacts very rapidly.

Use tools that others use in your investment strategy

If there was an ideal market, all players would analyze the 14-day chart and base their decisions on it. With the RSI below 30, they would start buying, causing prices to increase. In the real market, players use various technical indicators and forecast various trends as well as levels of support and resistance. The multitude of opinions and techniques used carries a multitude of possible price movements. Most players, however, use the same set of technical tools, the most commonly used are: 9 and 14-day charts RSI, clear trend lines and support levels, Fibonnacci string, MACD and 9, 20 and 40-day exponential moving averages. The better you predict the behavior of other players, the more accurate yours are. Simple arithmetic laws are decisive here: at a certain rate, a greater number of buyers than sellers means a price increase, and vice versa.

Guest article by a long-term currency investor, Henryk 'FxLamer' Woźniak, ForexTrader.pl.