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7 PRINCIPLES OF DEVELOPING A PROFITABLE FOREX TRADING STRATEGY (SYSTEM)

Trading Strategies and Indicators 2comments 138 views
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Any trader, regardless of experience and success, knows that for normal trading in the forex market (as well as in any other financial market), not only a deposit and a desire is needed, but also an effective trading strategy.

In this article, we will analyze what is a trading strategy in the forex market, as well as 7 basic principles for developing a profitable Forex trading system.

1 PRINCIPLE: DO NOT TRADE IN FOREX WITHOUT A CLEAR TRADING STRATEGY

This principle is rather the reason why it is worth spending time and effort on developing your trading strategy.

I want to draw an analogy: can I drive a car without the rights and knowledge of traffic rules? Yes, it is possible (in the CIS it is a popular practice)! But how long can you ride without incident? Is it safe?

The same situation with the trading system in the forex market: you can trade without it and you can even get it at first. Perhaps you will get a little overclocked deposit. BUT! Sooner or later, the fart will end, and the harsh market will make you a victim.

Why fart? It’s simple: trading without a stable strategy, you simply guess, use intuition to make trading decisions. It’s all very far from trading, it’s more betting or even a casino. Accordingly, the lack of knowledge, in the end, makes itself felt in the form of a partial or total loss of the deposit, and as a bonus, you get mental and moral pain!

And here is the main question: do you need it? Having at least the simplest trading strategy on forex, you increase the chance to stay in the ranks repeatedly!

Therefore, my advice to you: if there is no clear and proven trading system, do not enter the market, it simply takes you!

2 PRINCIPLE: TECHNICAL ANALYSIS IS THE BASIS OF THE BEST TRADING SYSTEMS IN FOREX

Nevertheless, you decided not to test fate and begin to make your trading strategy. Let’s start with the fact that in itself contains trading strategy: trading system (plan), risk management, certain psychological techniques. Then, in more detail, we will analyze each of the parts.

1. FOREX TRADING SYSTEM (PLAN)

This is a system of criteria by which you evaluate the market and make trading decisions. If you ever scored in Google “trading systems forex” or “trading strategies on Forex”, you know that such algorithms are dark!

We will not dwell in detail on discussing all methods of market analysis, but we will only analyze the most effective (in my opinion) approach.

Foundation or technique? Uniquely technique. It’s simple: a fundamental analysis on Forex is great for those who trade sooo long-term with a good deposit (not 10k dollars) in order to survive possible significant drawdowns. Among retail traders, such units.

For us (ordinary mortals) it is technical analysis that is most valuable. At the same time, do not completely forget about the fundamental factors: if the Central Bank announces a quantitative easing (for example), then buying such a currency is not the best idea.

Therefore, it is always worthwhile to follow the news in order to be aware of the events and not to catch the stop loss just because they accidentally opened the position before the important news.

 

As for technical analysis, I do not advise paying attention and using classical indicators! Forget (as paradoxically as it sounds) about any triangles, flags, pennants and dragons, about Fibonacci (only if not in pairs with volumes), Bollinger, RSI, MACD and other Labuda! At a minimum, they work through time, in the worst case they do not work at all + show everyone with a delay, which makes analysis even more difficult.

Instead, better pay attention to volume trading, market profile, open interest, cluster analysis, deltas and sentiment. These tools are used by many successful traders. Unfortunately, there is very little information on some of these things, even in English. Nevertheless, their study will allow you to look at the market differently and improve your understanding of the situation.

2. RISK (MONEY) MANAGEMENT ON FOREX

This is simply a super-duper an important part of any profitable trading system, which, unfortunately, many traders ignore. In the risk management is not only what risk you take on the deal, but also the correct mate. waiting, positioning, accounting for the correlation of instruments, how many trades to open and for what instruments, work with stop loss and a whole bunch of nuances. You just have to think it all over before you go into the market. It is because of the wrong risk management (or even his absence) that there are problems with psychology and discipline. Overstating the risks and overcoming the drawdowns, you exhaust yourself morally, you are tense, you are overcome by fear, and you are already beginning to pray to all the gods in the world, if only the market will go in your direction. Then you start to wonder even more, climb into incomprehensible transactions, want to recoup, etc. The end of this one is a loss of money and a shaky nervous system and ego.

3. TRADING DISCIPLINE AND PSYCHOLOGY

This follows from the previous paragraph. If you have a trading plan, you must strictly adhere to it. You should have a threshold for a drawdown, after which you are out of the market for a few days. Even if you are a choleric and Italian in one bottle, in trading you must be cold-blooded in relation to both losses and earnings.

Of course, in words it is easy, but such skills can only be worked out in practice, and, working on a particular system.

3 PRINCIPLE: THE MEDIUM-TERM TRADING IS THE BEST FOREX STRATEGY

There are countless different trading styles: scalping, news trade, mid-term, long-term, intra-day trading and so on. We will not go into deep depths and analyze in detail each trading style (and there are many more than I mentioned), there will be a separate article for this.

In my opinion, it does not matter whether you are a beginner or not, the best choice is a mid-term trend trading strategy.

The reasons are simple: less time costs, accordingly, more freedom (especially this is critical for those who combine trading with the main job); not such a strong tension as in scalping, respectively, we more deliberately make trading decisions; you do not depend on the broker and his “tricks” + fewer variables that influence the outcome (for you, neither the spread, nor the execution, nor the shoulder plays a significant role).

After you have completed the development of your system, it should be tested on a demo account. Do not be embarrassed by this, at first everything should be tested on virtual media. If the system is running on a demo, you can switch to a normal real account (if you do not have the money with the money, you can start with a centsman). It is desirable that the system shows a stable result on the demo for at least 3 months (this is a minimum), after which you can already move to the next level. If, even on the demo of the problem, the strategy is worth further work and try again.

Be prepared that in the beginning there will be roughness, problems and many mistakes, this is normal. Nothing can easily happen.

I would also like to dispel a few myths and misconceptions about trading systems on Forex (what to do and not use).

FREE PROFITABLE FOREX TRADING SYSTEM

Just want to say, no one will give you anything sensible. Most likely you will get either a strategy that worked 10 years ago, or in general, a completely stupid system.

If you promise that you will be taught and will give a working system for free, you must at least deceive you and most likely want to use it.

Therefore, if you want to save both time and effort on compiling and developing an effective trading strategy, then you need to forget about the “freebie” and be ready to pay for training. Immediately I warn you, good and quality training can not cost 200-300 dollars, the average price is $ 1500 for individual training.

If you want to do everything yourself and not spend money, be prepared for a long and thorny path.

RISK FREE (NO-LOSS) FOREX TRADING SYSTEM

This is already from the category of myths, but many newcomers really believe that there are systems that allow, if not always close deals in +, then at least 90% of the time.

Guys, Grali is not! I have not yet met a trader who for a couple of years could show that not 90%, and even 70%.

Everyone has hard periods (for example, summer) or some failures in the system (yet the market has the property to change), which lead to the deterioration of the trading strategy, and as a result, the results are reduced. And this is normal!

Stop losses and drawdowns are part of the business, they can not escape. If you do not like it, then you are not there, you are better at a Online-Casino! There definitely will not lose (sarcasm)!

Therefore, you need to be prepared, that everything will not be sweet. In the beginning, so sure.

AUTOMATED (ALGORITHMIC) TRADING STRATEGY IN FOREX

Unfortunately, many people associate it with “I’ll buy an advisor for 100 dollars and I’ll cut Millions!”.

Everything is much more complicated.

The situation with robots is similar to free trading systems. No one will give you anything suitable. Most likely, it will be a complete bullshit or, again, you just want to * baht (especially if the robot offers you a broker).

Really working advisers cost thousands, or even tens of thousands of dollars. In addition, you are not immune to the fact that the robot will not stop working or fail at a critical moment. Well, if there are those. support and you will quickly help. But sometimes, even its presence does not save from losses or “miracles”.

The most correct option is to learn how to trade with hands, and then automate the system. In this case, you are always able to fix it yourself, or, in case of what, to switch to manual trading.

PROFITABLE FOREX TRADING SIGNALS (ALERTS)

In one of the upcoming articles, we will discuss the topic of signals in more detail, so let’s say only briefly: not only is there little service for good signals, it’s quite difficult to learn how to trade by signals. This option is more for those who want to press the buttons themselves, without going into the essence of what is happening.

Also, we do not consider trust management, since in this case you will become not an investor, but an investor.

 

The bottom line

 

While writing the article, I did not think about how to overtake the horror of readers. No, my goal is to show the harsh truth that trading is an interesting and profitable, but very complex business. I’d rather break your rose-colored glasses (if they were) than the market does (and he will do it 100%) and, perhaps, this article will save your time and money.

 

In the following articles, we will analyze in more detail the risk management and psychology of trading.

 

If you have any questions or comments, write them in the comments, I’ll be happy to answer.

Also, you can add me to Skype – vovkfx, if you need advice on a specific issue or service company.

Thank you for attention!

All profits!

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  1. Sophia Mason says:

    Like technical analysis should be more concerned than a traders instincts, patience and research two main fundamentals I have read and learned so far. Do you have any experience with SignalSkyline I am thinking about taking forex signals so I can be risk free. What do you suggest?

    • andrii says:

      Hello Sophia. Thanks for your comment. Well, honestly, I skeptically concern to trading signals as there are only few resources that provide quality service. Anyway, if you want to use signals I advise you to look at myfxbook and choose 2-3 providers to share your deposit among them. It will reduce risks. Also, be aware that there are no risk free signals, investments and etc. It is impossible as market is too unpredictable, so drawdowns are typical thing. If you want to learn more, add me in skype. My ID – vovkfx

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