Forex. Development of a trading strategy
Trading on the Forex market is a complex daily work that requires a lot of effort, knowledge and experience. Before a trader starts earning money in the currency market, he goes a long way, making mistakes, looking for and learning. Only some people manage to find the right way, while others are disappointed in this type of activity. The mistake of many novice traders is that they are in a hurry to start trading using ready-made strategies, often thoughtlessly repeating the algorithms of others’ actions. This is a hopeless way, as for trading to be successful and safe, it is necessary to study the market, principles and methods of trading, as well as many other things. Below we will talk about the development and use of our own trading strategy in the Forex market.
A trading strategy, or a trading system, as some traders say, is a set of technical and fundamental means of market analysis, as well as methods of opening and closing transactions on them, working with loss-making positions and profit taking. Simply put, all the actions that an experienced trader is accustomed to, with the help of which he regularly and steadily makes a profit, are called a trading system. In a narrower sense, a trading strategy is an algorithm for entering and leaving positions by signals of certain means of analysis. Any trader in his trade is guided by any signals. In the meantime, he selects the best indicators, methods of analysis, gets used to them, studies the subtleties of their work, and, thus, forms his own trading model, which we call a trading strategy.
As mentioned above, using someone else’s trading strategy for real trading is an ungrateful thing to do: first of all, there is no guarantee that it is profitable. Secondly, even if the strategy was profitable for its creator, it does not mean that it will bring it to you. There are no universal strategies, any algorithm working without correction by an experienced trader’s hand will fail sooner or later.
So, any trader needs his own strategy. Below are a few steps in creating your strategy
1) Selection of indicators, advisors and other means of analysis.
First of all, I repeat: you should understand the algorithm of working with all these analysis tools and have experience of working with them. In addition, a common mistake of many traders is that they are typing in too many similar indicators, which only harm trade: while the trader is waiting for a simultaneous signal from all the indicators, the moment to open a deal goes away. Use indicators that complement each other. An example of such indicators are moving averages and various oscillators, such combinations are used in their trade by almost every trader.
2) Choosing a currency pair/pair for trading.
Each currency pair is unique and unique. One of them is characterized by high “recoverability”, a large number of rollbacks and their depth, the other by protracted trends, the third by strong movements and high volatility, etc. All these features can be used for your own benefit in trading, it is enough just to study the currency pairs well. Besides, there is such a notion as correlation of currency pairs: many rates repeat each other’s movements. The simplest example of such copying is the euro/dollar and pound/dollar pairs, the movement of which is often almost the same
3) Choice of trading style
Depending on the deposit, objectives and opportunities, different risk levels can be selected. All traders are divided into those who prefer long-term, medium-term or intraday trading. There is also a special group of “scalpers”, who work on small time periods, making a huge number of transactions.
Learn more about scalping strategies in the article How to earn money on scalping?
The choice of timeframe depends on the trading style. It is believed that larger timeframes, starting from one hour, are more suitable for long-term trading. Scalpers prefer to work on minutes, five-minute charts and, less often, on large pedals.
This also includes the principles of management: in order to increase the profitability of trading for each transaction, you need to use a higher percentage of the deposit, of course, at the expense of the part of it that should be free with more moderate risks and insure us in case of error
4) Selection of the principles of profit taking and working with loss-making transactions
You’d think it was easy with the profit, I took it and fixed it. In fact, experienced traders are constantly looking for methods to help maximize this profit. Often we close trades too early and price movements continue, we lose potential profit. To avoid such cases, methods such as traling-stop or partial closing of transactions are used. As for the losses, we should choose between their fixation and the methods of outputting them into the plus of losing trades. If everything is clear with fixation, then we will explain the conclusion in plus: we are talking about different methods of averaging, “martingale”, “locking”, etc
5) Technical aspects
Once the principle of trading has been approved and the strategy has been created, it is worth thinking about some possible restrictions for brokerage companies. Examples of such restrictions are the limits of open trades, a ban on the simultaneous opening of deals on one pair in different directions and others. Of course, such restrictions are not an obstacle for most, but some strategies imply such actions. In addition, if the strategy implies the work of the Expert Advisor, it is worth taking care of hosting for it. If you are a “scalper” and conduct a large number of transactions with minimal stops and profits, it is worth taking care of the stability of the Internet and computer operation. Renting a VPN server is the best way out. Some brokers provide this service free of charge for a certain deposit of the client.
Before you start to trade real money with a new strategy, don’t forget to try it on a demo account. If possible, it is better to order the development of an Expert Advisor for your strategy, which will help to test it on long time periods and on the most difficult moments of history. You can order the creation of an Expert Advisor on any forum, for example, here – MQL5.
A trading strategy is not only an algorithm that a trader can understand, but also simplifies the search for signals and entry into the market. The trading strategy also solves many psychological problems, precisely specifying the points of opening and closing of transactions, the size of profits and losses, saving the trader from unnecessary decision-making. But you should not rely entirely on your own strategy. The market is changing over time – the things that worked steadily yesterday may fail today and stop functioning tomorrow. To prevent this from happening, it is necessary to monitor such changes in the market, adapting your trading algorithm to them.
Have a successful Forex trading!
Get more information about finding an individual trading system in the article Searching for a trading strategy