Many people believe that markets are random, so they prefer to trade solely based on personal feelings. Sometimes it is also possible to make a large profit in a trade based solely on your intuition. However, success in this way is by accident. There is no guarantee it will repeat for you.
Experienced traders often rely on carefully researched trading strategies. They know that although there may be some discrepancies in the exchange rate, they follow certain patterns. Therefore, a strategic approach is required for trading. That is why we encourage you to build your own trading strategy.
Benefits of having a trading strategy
- Strategy for building rules. It helps traders avoid destructive emotions during the trading process, but only if the trader follows the strategy without any discrepancies.
- One strategy might be to reverse test based on data history, so you will have a basis for trading.
- A strategy that reduces time for market analysis. As soon as the strategy provides signals, traders start to take action.
You can find many different forex trading strategies on the Internet. Before using any strategy on a real account, test it on a demo account. There are realistic expectations – some trading strategies are better than others, but none are 100% profitable.
So, although there are hundreds of strategies to use, you can try to build your own. An undeniable advantage when considering individual approaches to forex trading.
You do not have many years of trading experience to create your own strategy. However, you should rely on the following basics:
- When and how the exchange rate fluctuates. For example, you should know that currencies can go up or down depending on central bank meetings and the release of important economic data.
- The profit-taking opportunity is: which economic / technical setup events will lead to specific market moves.
- How to read Forex charts and use technical indicators.
Steps to build your own trading strategy
1. Ask yourself who you are: surfing speculators, day traders, medium-term traders or long-term traders and choose a time frame – M30, hourly, daily, weekly, weekly month, v. v.
2. Decide on which market conditions you will focus on. As you know, there are three main conditions: trend, range and breakout. Each of these conditions represents its own market. As a result, a good strategy thanks to the trading trend can show poor results when the market changes.
3. Choose your tool: which technical indicators will you use and if so, which one? There are two types of trading strategies: directed and non-indicative. If you prefer an indicator strategy, the various technical indicators available in Metatrader will help you determine market movement. Non-indicator strategies may include analysis of candlestick patterns, chart patterns, trend lines and other price action factors such as trading news.
4. Define the patterns (conditions required) and rules on the order of your own trading strategy.
The pattern is a favorable market condition, significant but not enough to open a trade. It may refer to a specific position of the candles or indicators that you apply to the technical chart. The pattern shows a favorable time for the trade, but it does not indicate the exact time when you entered the order.
The pattern may include one or more filters. The filter is designed to protect traders from receiving false signals. However, if you apply too many filters, you risk losing the trading signals completely, so a balance of number of filters is needed.
The second key factor is activation threshold. Contrary to the pattern, it is a technical signal that indicates the appropriate time to enter the market. Your specific trigger threshold for entering the market without hesitation is important. It can be candles, bar patterns, indicators and oscillators.
5. Set up strict risk management parameters: risk / profit ratio, position magnitude. Usually the risk / profit ratio is 1: 3. The basic trading rule is as follows: the risk is no more than 1-2% of the funds for 1 trade.
6. Choose exit rules – create a rule for profit taking or stop loss.
Not only activating the entry command, but also activating the exit command as well. It is time you understand that it is time to close your trade. Activate a good exit not only when you lose, but even if you trade with profit because the market will not support you forever.
7. Write down the rules in your trading strategy. Even if you definitely remember all the strategies, it is important that you write them all down so that when using them you can trade without hesitation.
8. Test your strategy on a demo account. Make a good effort: this forms the basis for your success. If you make a mistake, you’ll probably fix it for free.
9. Start using your trading strategy on real accounts: don’t delve into your rules but keep learning and think about how to make your strategy better.
Synthesized by top4forexbrokers.net