Forex Trading Tactics

It is possible to make money trading foreign currencies. In order to do so, one must use Forex trading tactics in daily trading. We are talking about tactics here, instead of strategy. Some time back we wrote about online Forex day trading strategies that traders use to make money trading Forex. Let us start by understanding the difference between strategies and tactics.

Strategies versus Tactics

Tactics and strategy are commonly confused. Strategy is the grand overall plan and tactics are the execution of that plan. Tactics are the specific means used to gain an objective, like making money on trading a currency pair. Strategy is the overall organizing principle of your trading. Tactics are the use of strategic principles to accomplish short term goals. A strategy is to trade the US dollar versus the Yen to take advantage of current Japanese monetary strategy which seeks to devalue to Yen. Tactics are using Forex charting with candlesticks in order to take advantage of short term market inefficiencies.

Developing and Maintaining a Strategy

Choosing to trade the most volatile currency pair available is a strategy. Deciding to limit your trading in any given currency pair at time to no more than a third of your trading capital is a strategy. And, deciding that you will always set your trading stops to limit losses and insure profits is a strategic decision to trade conservatively. When fear or greed make a trader disregard his trading strategy this can be a disaster. The advantage of sticking with a specific strategy is that one does not have to rethink what he is doing in the middle of the action. And, specific tactics fit specific strategies. They can be practiced in simulation trading and perfected.

Forex Trading Tactics and Profits

Looking for signals of a change in market direction and then trading accordingly is a tactic. Setting specific trading stops appropriate for the current market is a tactical decision. Deciding to change basic strategic decisions is not a tactic and can lead to disaster. But, using tactics that follow a well thought out strategy can lead to long term profits.

An Example of Forex Tactics

Forex trendline traders need to read support and resistance levels. Using Fibonacci retracements is a tactic to help spot potential retracements. Another tactical use of Fibonacci is to help set buy and sell stop limits. Using a Fibonacci method requires learning it and practicing, ideally in simulation. However, this method can be a great tactical tool in Forex trading.

When Strategy Trumps Tactics

A successful trader must know how to use his tools. This means reading second by second changes in the market and reacting accordingly. The danger inherent in nose-to-grindstone trading is not seeing the forest for the trees. In short, it can be too easy to get absorbed in the tactics of trading that one misses things that are basic to a trading strategy. For example, if you want to day trade you need to close out your positions before the end of the trading day and not get caught waiting to make a tactical move just as the market closes!