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In finance, a Forex trading strategy is a fixed plan that is designed to achieve a profitable return by going long or short in markets. The main reasons that a properly researched trading strategy helps are its venerability, quantifiable, consistency, and objectivity.
For every Forex trading strategy one needs to define assets to trade, entry/exit points and money management rules. Bad money management can make a potentially profitable strategy unprofitable.
Forex trading strategies are based on fundamental or technical analysis, or both. They are usually verified by back testing, where the process should follow the scientific method, and by forward testing where they are tested in a simulated trading environment.
The term Forex trading strategy can in brief be used by any fixed plan of trading a financial instrument, but the general use of the term is within computer assisted trading, where a trading strategy is implemented as computer program for automated trading. Technical strategies can be broadly divided into the mean-reversion and momentum groups.
Long/short equity. A long short strategy consists of selecting a universe of equities and ranking them according to a combined alpha factor. Given the rankings we long the top percentile and short the bottom percentile of securities once every re balancing period.
Pairs trade. A pairs trading strategy consists of identifying similar pairs of stocks and taking a linear combination of their price so that the result is a stationary time-series. We can then compute z-scores for the stationary signal and trade on the spread assuming mean reversion: short the top asset and long the bottom asset.