How Professional Strategic Forex Traders Operate
Updated: March 22, 2013 at 3:12 PM
Those who have arrived at the enviable position of being a professional strategic forex trader for a major international bank or hedge fund tend to focus on taking advantage of longer term moves in the forex market.
Such strategic traders, who often form part of the management of a currency trading operation, can also take positions overnight in just about any liquid currency pair they like for as long as they like within certain risk management parameters.
What Qualifies a Strategic Forex Trader
To attain this rather elevated position in a forex dealing room, you will not only need to have amassed considerable experience trading in the forex market under a variety of conditions, but you must also usually have achieved a good track record of reliable profitability when dealing forex.
In the case of bank traders, such a profitable trading history will need to be based more on your consistent ability to forecast exchange rates well than on your ability make money by trading off of customer business and orders.
Focal Points for Strategic Traders
Strategic traders do not generally have to focus on intra-day fluctuations in just one currency pair, like many professional forex market makers and scalpers do. Instead, they typically use a reliable combination of technical and fundamental analysis to arrive at a trading scenario that has a high probability of success in terms of its profitability for their employer.
They can also plan on having their positions benefit from favorable interest rate differentials and compound interest just like carry traders do, since their positions will often be held for some time.
How Strategic Traders Plan Their Trades
Strategic traders generally carefully plan any positions they consider taking, and often consult with currency charts to determine optimum short term entry and exit points based on support and resistance levels.
Furthermore, they will usually manage their risk with stop losses and will aim to achieve a certain realistic take profit level. This will give them an easily-calculated initial risk reward ratio for the trade where the risk is the number of pips from their entry point to their stop loss level, while their possible reward is the number of pips to their take profit level.
Not only should their strategic trades be planned in such as way as to show a high probability of success, but their trades should have a risk reward ratio that makes their rewards as at least twice as large as the risk they will be taking.
What Strategic Traders Do With Open Positions
Once a strategic forex trader has initiated a position, they will then usually enter their intended stop loss and take profit orders into the market in strict accordance with their trade plan. They then wait until either order is executed to assess the outcome of their trade.
Some strategic traders working at major financial institutions will use call levels in place of orders where they receive a phone call at any time of the day or night if the market is approaching their intended stop loss or take profit levels so that they can better assess the market at that time.
Furthermore, some such traders will trail their stops by putting them at more favorable rates when the market moves in the direction that results in profits accruing on their position. This trailing stop strategy is often used to follow trends and protect accumulated profits.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.