Basic principles of forex trading
Forex trading always involves buying one currency and selling another one simultaneously. Currency quotes are presented as exchange rates, that is, what is worth one currency in relation to another. What determines the value of the exchange rate is the relative supply and demand of both currencies.
A forex trader, when he makes an operation, he is looking for the value of the purchased currency to appreciate against the currency he sells. The ability to predict how an exchange rate is going to change is what will win or lose in an operation. Let’s give an example with the quote of a currency that we have obtained through the forex trading system.
Take for example a current offer and demand price of EUR / USD of 1.0126. This means that you can buy one euro for 1.0126 dollars.
Think that you believe that the euro is depreciated against the dollar. To make this strategy, you would buy euros, and simultaneously sell dollars, and then wait for the exchange rate to rise.
That’s when he performs the operation: he buys 100,000 euros (1 lot) and sells 101,260 dollars.
If everything goes as you expected, EUR / USD goes up to 1.0236. Having bought euros and sold dollars in the previous operation, now will sell euros for dollars to obtain the profit. Now he is ready to sell 1 euro for 1.0236 dollars. By the time you sell the 100,000 euros at the current rate of EUR / USD 1.0236 you will receive US $ 102,360.
Basic principles of forex trading
Having a basic knowledge, you must find an appropriate strategy to be your first work tool. That is to say, it will look for a method that will have to prove it hundreds of times. This set of tests or simulations that you will perform on your method is called Backtesting. The question would be: Where do I find a method? Simple answer They abound. There are thousands of methods posted on the Web, in forums or specialized forex pages. Thousands of methods and thousands of hybrids of such methods, even when you have experience, could create your own methods. The methods or strategies already exist (you do not have to discover the gunpowder). What you are obliged to do is to try the method you have chosen against the past (that is the Backtesting). I want to be emphatic in the following. Testing your method means that you test your strategy against the past. For example. Take the months between January and December 2009 and test the effectiveness of the EUR / USD using your metatrader or the platform that you use the most. The Backtesting is shown on an Excel sheet where you must enter data such as the entry price, the exit price, the normal profit, maximum profit, maximum loss, operating hours, etc. Only then can you quantify if the method you are using is good for something or else discard it and use another method. Normal gain, maximum gain, maximum loss, hours of operation, etc. Only then can you quantify if the method you are using is good for something or else discard it and use another method. Normal gain, maximum gain, maximum loss, hours of operation, etc.Only then will you be able to quantify if the method you are using is good for something or else discard it and use another method.Trading forex is a subject of PROBABILIDADES you can have a strategy that of 10 entries 8 are good and 2 bad. So if you have reasonable limits and stops your strategy should work and in a month your account “should” be with nice numbers for your eyesight. It happens that novice traders make the mistake of not trying a strategy as it should. An excess of confidence that in the long run will become very, very expensive.