Most novice traders start their trading journey by learning the strategies of other traders. However, the good news is that creating your own trading strategy is easy.
The bad news is that creating your profitable forex strategy is not a walk in the park.
If you think diving into the forex market without a plan will make you profitable, you’re probably mistaken. Instincts and hunches don’t really work in the forex market.
Before creating a forex strategy, ensure you exploit the following market strategies;
Once the market conditions are set for a procedure, the next thing to decide on is the timeframes for executing the trades.
After that, you can then go ahead and decide on how to enter the trades.
Benefits of a Trading Strategy
A trading strategy is essential for traders who want to be successful in forex trading. As it’s a set of rules, it helps any trader to avoid destructive emotions while trading.
Also, since a strategy can be backtested on historical data, it means you’ll have the proof that it will work. It also reduces your time for the market analysis.
How to Build a Profitable Forex Trading Strategy
It’s recommended that a trader uses a strategy that they are comfortable with for the best results.
To ensure that you come up with the best trading strategy, here are some rules to follow:
Filter Information Results
The forex market is vast with both beginners and experienced traders in it. Most of the time, some traders will provide advice on how to trade, but you should not always follow that information.
First, if you have to follow it, investigate the source, and ascertain its trustworthiness.
Test and Modify Information
For instance, developing your trading strategy requires some knowledge to some extent, especially that from experienced analysts.
However, you should not use the advice straight away, instead, use it in a demo before applying it in real-time trading.
Therefore, it means that a strategy has to be modified and then observe the resulting results. You can then come up with a new formula according to your requirements to increase the effects.
Monitor Long-Term Trends
In the forex market, there’re various ways a trader can get profits. For instance, some traders benefit from the short-term changes in the market, but to understand the direction of the market well, ensure that you observe the long-term frames. They are the ones that indicate the real picture direction of the market.
Various Timeframes are Significant
To come up with a good trading strategy, you should consider a plethora of time frames. Looking at only one timeframe and then constructing a plan won’t do you good in forex trading.
Observe the daily as well as weekly data to get a different input, unlike only observing hourly trends.
Economic events usually are the drivers of the direction the forex market takes.
However, the direction can be predicted using the technical analysis, but when developing your strategy, ensure that you include fundamental analysis.
Sometimes the market can get in the wrong direction, and without stops, things may even get worse than expected.
With open positions, setting stops is essential. Watching the market 24 hours can be a difficult task, hence stop positions come in handy, for instance, the help limit the losses as well as secure profits.
Consider the Market Volatility
The currency market is very volatile, and some pairs are even more unpredictable. Therefore, ensure you have a clear idea about those pairs as their prices go up or down in a flash. Trading with pairs of such type requires that you take care by only investing small amounts.
Define the Exit Trigger and the Risk
Plan how you’ll exit the market when things start going wrong. Besides, when the market goes your way, plan how to exit as it will not forever your way; know when to take the profits.
Once you set the entry and exit rules, work on limiting your risk. Position sizing is the primary way of doing it.
Plan on Improving the Strategy
A trading strategy should not be static but merely a living object. While your knowledge and experience get better in forex trading, your policy will also improve. Plan on forward testing the strategy and taking notes and keep the charts.
Coming up with a profitable strategy requires understanding and proper preparation.
However, it doesn’t mean that a strategy is a Holy Grail; it improves confidence and guidance in trading to ensure that you succeed.