Creating a trading strategy

[davidjss]

One of the most common mistakes new forex traders do, is that they have no trading strategy. Because of the many appealing characteristics (24 hours, trade both short and long, leverage etc) most of the new traders entering the market are eager to prove themselves in an often egoistic approach. Egoistic in that they believe that they can become very profitable and make a fortune in the short term, but soon enough they end up with a bad psychology which at the end accelerates their loosing pattern. In fact, the most successful forex traders are people recognized for their humility and discipline. These qualities are acquired trough experience and accepting some simple realities of the forex market.

The first step towards becoming profitable in the forex market is to devise a trading strategy/plan. Creating a trading strategy is of paramount importance and is actually very easy. To create a successful trading strategy, traders should address the following considerations:

1.Reasoning of the trade: Why buy or sell? Which pair?

2.Timing of the trade: Why now? Before economic news releases or after?Day or night?

3. Trading objective: What is the take profit target? What is the stop loss?



4. Money management.

5.Documentation and analysis of the results.

Before entering a trade there should be a good reason. Many times traders are entering a position because of boredom or just to feel the excitement of being long or short. This is a recipe for disaster! You should always buy or sell any pair on a reason that makes sense to you. Whether this reason is fundamental or technical or both, always make sure there is a reason. What currency pairs will you trade? This sounds simple, but it is easy to get confused if you don’t define this. From our experience we strongly believe that is best to concentrate on some (not all) major pairs (such as EURUSD, GBPUSD and USDJPY) and don’t waste time with illiquid, choppy pairs. You also have to determine when you will trade and how often you will trade. Are you going to be a day trader or hold positions for a longer period of time? Your schedule and responsibilities may have some impact on that. Should you trade before economic releases or after? Should you trade heavily on nights, during UK open and close etc? It is important to define these basic ideas to begin to form some consistency and discipline.

The second step is to define your trading objectives. What is your end goal? What is your take profit target and your stop loss limit? Try to place your take profit and stop loss before entering the trade as you can always change that, if something important happens in the markets in the meantime. Most traders tend to take their profits early while letting their losses run. This is because in the inexperienced traders mindset is very difficult to accept that he/she is wrong. Placing your stop loss at the time you open a trade will help you create discipline and learn that sometimes you will be wrong. Furthermore, most new traders have completely unrealistic goals. Making big returns in the first year of trading is possible but highly improbable. These unrealistic expectations wipe out a lot of traders before they even had the chance to learn the market. Breaking even in the first year is an admirable goal; many traders do not do that. If a trader makes 20-30% on their initial investment in their first year, that is outstanding.

Money management is probably the most important aspect of trading. First you have to accept that in trading nobody can have a 100% winning ratio and everybody (even the most experienced traders) are sometimes wrong. Accepting that sometimes you might be wrong is again of paramount importance. The key here is accepting you are wrong before your mistake becomes too big. To do that you need to determine how much equity you have to fund you account. Then you must determine how much risk you are willing to take on each trade. Most experienced traders risk 1-4 % of their account balance on each trade. This may look too low to the new forex traders, but will definitely help you avoid big losses, create the necessary discipline and keep you in the market in order to get the necessary experience. Also very important is to have a positive percentage of winning trades compared to losing trades and a positive average profit compared to the average loss ratio. If your average loss is two times your average profit that means you need to make 10 profitable trades to cover 5 losing trades. Keep this in mind.

Along with money management, it is vital to keep track of your past trading and results in order to recognize past mistakes and avoid them in the future.

This is just a basic start to having a successful trading strategy in the long run but will definitely help new traders get the discipline required to be profitable in the very exciting Forex market.

 

[kasual]

price movement is something that really difficult to predict and to overcome it, traders need strategy and plan. technically, strategy and plan will give traders clarity about what they need to do before entering to the market. many traders especially beginner have no trading plan and strategy and it make them trade like gambling.

 

[harreymartin]

Informative post shared on good topic "Creating a trading strategy " traders should need to create their trading strategy to make valuable profit in trading.

 

[indieover]

We can learn different strategies if you would try to practice and read and learn a lot and you can choose to best strategy for you. But it would not be that easy for traders to develop their own strategy but it's worth the effort.

 

[kasual]

develop own strategy need good knowledge and experience. especially about the price movement and indicators function. its something that not easy to do and will take times to found the best setup. but if our trading strategy work well already, we will forget the long time process needed to make it.

 

[riddick09]

To have see the market trend and the it's possible movements based on its previous status will be with the help of the Forex indicators. We can have one indicator or several ones to have better analysis. Or you can also not have indicators and rely on your own analysis and/or depend on the Fundamental analysis.

 

[chintu]

Actually creating a trading strategy is not as easy as we think because for creating a trading strategy we need to take many things into consideration . I\the strategy should be accepted my many traders and a good expert group should work to gain more and more profits with that strategy .

 

[indieover]

Yeah it is very hard to create a strategy. It's not something we can just learn to do easily. You would need to read and learn a lot first before you would be able to create your own strategy. That's why I think if you are able to create a good strategy then you have learned already a lot.

 

[budado]

If you are a newbies its better that you understand the fundamentals aspect of forex trading. Because how can you create a fundamental trading strategy if you don't even know the basic of forex trading? Were will you going to base your approach? What kind of analysis you going to pair to your strategy? Theirs just so many interconnected web that we need to learn before we can try to create our own strategy.

 

[riddick09]

Basic things in Forex includes learning the terminologies and also learn about the Forex market, brokers and the trading platforms. Then, sooner we will have go on for demo trading to have devise our trading strategy. This is not simple task because, we need to try out different Forex indicators to achieve the best indicators in our skills.

 

[PROPENSITY100]

Every trader should develop his own trading plans. This is because no two people are identical and they may have different trading styles and attitude towards the Forex market. A trading plan should emphasize the safety of our capital and should not take more risk than we can afford to lose without getting mentally disturbed.

 

[riddick09]

Yes, definitely. Our strategy is the only way to have the market analysis. Because, we a certain thing that will help us in analyzing the market and yet, to have any hints of a good placing of our positions. A trading strategy is usually consist of the various indicators and usually applied with stop loss.

 

[eddiej]

Really helpful post. I created a strategy that revolves around scalping on a very short time frame, it's a heavily modified version of some guy's old strategy that he abandoned a couple months back. Trying to relearn some things I might have missed. I do believe that it's important for traders to develop their own strategy and not just blindly follow another strategy, that way they could easily figure out what mistakes they make and easily remedy it.

 

[riddick09]

What time frame you are using? Normally, I used in scalping strategy to have 15M time frame and in this way we can still view the market with it's close the real trend. But so far, I will just not have improve my trading strategy as I still need more experience and capital before I proceed on trying other strategies.

 

[PROPENSITY100]

Really helpful post. I created a strategy that revolves around scalping on a very short time frame, it's a heavily modified version of some guy's old strategy that he abandoned a couple months back. Trying to relearn some things I might have missed. I do believe that it's important for traders to develop their own strategy and not just blindly follow another strategy, that way they could easily figure out what mistakes they make and easily remedy it.

Forex is all about developing good plans and strategies with a view to make profits. A good plan takes into account the safety of our capital also and always keeps the risk under control. Besides aiming to achieve good returns on our capital safety of our capital is also equally important or even more important.We should never risk our entire capital with a view to earn more.

 

[eddiej]

Forex is all about developing good plans and strategies with a view to make profits. A good plan takes into account the safety of our capital also and always keeps the risk under control. Besides aiming to achieve good returns on our capital safety of our capital is also equally important or even more important.We should never risk our entire capital with a view to earn more.

Of course, risking your ENTIRE capital sounds really extreme. I don't a good trader would even dare think about it. That's why everyone who decides to trade in the forex market should learn proper money management.

 

[riddick09]

By learning the money management is to have the demo trading. And if you just have some knowledge on it then, go on for the real one and apply it and check for it's results and if it is worthy.For me, a good trading strategy consist of convenient indicators for us and the S/L and/or T/P as our risk management.

 

[budado]

Problem with money management in demo is that in demo account we have big capital so I guess if we going to spend like 50,000 dollars capital in real account its good. But if we can only afford 100 dollars then our practice in demo account is useless as we are acustom to trade 50,000 virtual funds so using 2% of 50,000 virtual funds is still worth 2,000 dollars. While 2% of 100 dollars in real account is only worth 2 dollars.

 

[Markllee30]

That’s good thread man, good work done. According to me, trading time is very important so I will suggest set trading time also first 2 hr and last 4 hr that’s always good timing for trading.

 

[budado]

That’s good thread man, good work done. According to me, trading time is very important so I will suggest set trading time also first 2 hr and last 4 hr that’s always good timing for trading.

In forex trading we are dealing with strategy and not how long each trade can last. I have lots of open position right now and some got TP in matter of few hours but most take days, weeks and even months to get TP. So its useless to limit yourself to 2 to 4 hours only. Unless you are doing scalping.