As a trader, you must develop a Forex trading strategy that
will allow you to quickly identify flaws and make
adjustments while continuing to trade. A classic approach
used to evaluate risks in the currency trading system is
the inverted pyramid approach. All macroeconomic factors
that affect a chosen currency pair are a function of the
top of the inverted pyramid. All technical factors are
considered as you move down to the bottom of the pyramid.
Traders assign weight to different parts of the pyramid.
Purely technical traders may apply more weight to the
bottom of the inverted pyramid (upside down triangle) while
fundamental traders may apply more weight at the top.
In order to make use of the inverted pyramid you will need
to understand the macroeconomic factors that are a function
of the top of the inverted pyramid. These include
international issues that influence the global trading
community. These types of issues may be gauged from news
reports and news feeds with global coverage. News networks,
such as CNN, provide up to date coverage of terrorism, oil
prices and other such issues.
In order to account for the technical factors that apply to
the pyramid, you will need to determine specifics and
sediment in the particular market within which you are
trading and also for any market that impacts the market
within which you are trading. You must decide the type of
technical indicators that will be used in your Forex
trading strategy. Some traders rely upon randomness and
chance while others engage more complicated mathematical
computations to calculate weighted moving averages. You
must be able to develop and visualize a picture of the
market, which identifies events that are of importance to
affect the market. You also need to develop a general feel
about the market. News reports and specific market reports
will assist you in developing a picture of the market and
also indicate of the direction in which the market is
headed.
You will need to determine which currency pairs are
volatile in relation to the macroeconomic environment and
market conditions that have been identified. You will need
to have knowledge of the market in order to identify and
differentiate market indicators from events that bear no
real significance. Your analysis of acquired data should
indicate whether price movements represent a trend or
volatility in the currency trading system. You will then be
able to use this analysis to narrow your options to trades
that offer the most potential.
You must be able to set floors and ceilings in your
technical analysis to establish trading levels and then use
those levels in your Forex trading strategy. Technical
patterns that indicate the direction of trades in specific
currency pairs should be developed. Once you have narrowed
down to a specific currency pair for trade, you will then
need to reexamine its market sediment as it applies to the
technical analysis. You will have to identify entry and
exit points for your chosen trades.
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Andrew Daigle is the owner, creator and author of many
successful websites including ForexBoost at
http://www.ForexBoost.com and
http://forex-trading-system.typepad.com , Free Forex
Training Resource for the Novice and Advanced Forex trader.
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