How To Build An Excellent Forex Trading Strategy
No matter if you are trading the stock market or the forex market, you have to have a strategy when trading. If you don’t have it, you will sooner or later react on feelings alone. And when you do, you will most likely lose money on your trade.
To make sure that you will not react on feelings, you use a trading strategy. Trading strategies are very different for different traders, but there are some building blocks that occur in almost every trading strategy. And they definitely occur in all good ones.
So what is really important when trading? How should your trading strategy look like? Well, there is no general answer to those questions. It depends on what you want to get from your trading. Assuming you will get as large profit as possible, but to what risk? And how much are you able and willing to invest? How large should the profit be in comparison to your investment?
Another factor determining how your trading strategy will look like is how much experience you have from trading and at what knowledge level you are at the moment.
A good trading plan is a simple one. Simple ideas are almost always the better ideas. This is also true for trading systems. The simpler the better, but it shouldn’t be too simple. Only as complicated as needed.
Are you a technical or fundamental trader? That is, do you make your decisions based on technical analysis or rather on fundamental data? Which time horizont do you use when trading? Are you a day trader or do you buy today and sell in a few years? The answers to all those questions have to be incorporated in your trading strategy as well.
If you are a technical trader, or if you want to be a technical trader you have to determine which signals or technical methods you want to use in your trading plan. Most traders use some form of moving averages and oscillators. But there are many other methods that you could use as well.
If you are more of a fundamental trader you will have to make the same decision here too. Which signals do you want to incorporate in your plan?
Make sure that the forex trading strategy makes use of a sound money management. You want to make sure that the profit you make is not going to be lost when you make a false buy. Since even the most experienced and profitable traders lose more often than they win, you have to make sure that you cut the losses as early as possible.
One of the biggest errors made by traders is that they don’t cut the losses. Although they know that is the correct thing to do, they believe they know better. They “know” that the trend is going to turn around, in the direction they have predicted. Therefore they wait. But the waiting is going to cost a lot of money. And at some point the trader says to himself, that now when the position is so cheap, he should rather buy than sell.
This is of course going to lead to the trader going broke if he continues in this way. But the worst is that when the trader has lot a lot of money, he tries to win it back on the next trades. Therefore he takes extreme risks to achieve this new goal. This is the point where most beginning traders go broke. The risks are that great that when they lose one of their positions they are almost broke.
To counteract such a behaviour, you should write and use a forex trading strategy. You should have a trading strategy for every single trade. And you have to follow your plan! Be disciplined!
Research has shown that disciplined traders with a plan are much more profitable than the rest. It doesn’t even matter if the plan is correct or not. The combination of discipline and plan makes all difference.
If you want to make it a bit easier, you can always try to find a free forex trading strategy. But beware, you have to check up on this free strategy since not all published strategies are good.
When you have a strategy that you want to use in your trading, it is always wise to test it first. One good way of testing is to do it on a training account. This way you can test the new strategy under live conditions. If it works out on the training account you can try it out live with your money. But take it easy the first trades so that you won’t lose too much money if it turns out wrong.