Trading currencies is not without risk. The high amount of leverage available to individual traders dramatically increases the risks involved with trading. With the use of 100:1 leverage, a trader can control $100,000 with just a $1,000 investment. If the trade works for you, you can easily double and even triple your capital. But if the trade works against you, you can lose more than your initial investment.
The goal of any trader is to maximize profits while minimizing losses. To accomplish this gargantuan task, traders employ the use of various trading strategies. A quality trading strategy is like a blueprint for handling the market. Just as a builder will follow a blueprint to build a house, a trader will follow a trading strategy to move in and out of the market.Emotions are a trader's worst enemy. Fear and greed will cause you to miss good trades and chase bad trades. If your emotions are not in check, small losses can turn into devastating losses and large profits can quickly evaporate. A trading strategy will help keep your emotions in check--as long as you have the discipline to stick with the plan. You won't be able to make a profit on every trade. This simple fact makes having a loss cutting strategy very valuable. Keeping losses small will not only allow you to trade again, but they are emotionally easy to handle. On the other hand, a trading strategy will also include when to take profits. Nothing goes up forever and without a profit target you won't be able to realize your "paper" profits. Ideally a strategy will take into account both fundamental and technical analysis. Only very short term strategies will rely solely on technical analysis. Longer term strategies must take into account the fundamentals of a specific currency. Before choosing a strategy you must know your risk tolerance, time frame, and available capital. After that you can narrow down available strategies to what matches your personality.
