How to Create Your Own FX Strategy
Forex trading can quite profitable but that profit is not earned by lucky guesses or hunches. While it would definitely be a great feeling to say “I don’t need any strategies, I trade using my gut.”
Sadly, that’s not how things work. To be able to profit from forex trading, you need an effective strategy(s).
So how do you get a strategy you ask?
Well there are several ways:
- You can buy a trading strategy
- You copy those of others using social trading
- You can develop your own
Today we’ll be giving you a few tips on how to develop your own forex trading strategy.
When looking to build your FX strategy, there are a few key things to look for:
- Time Frame
- Entry & Exit
When designing your forex trading strategy, you need to think about how long you will hold a position for. One factor which will affect this is the type of trading you do.
Are you what is considered a day trader? Meaning you start and complete your trades in one day. If that is the case then you will work with a day. If you are any other type of trader, such as long term investor then a different time frame will be necessary.
In any case, the time frame you choose is the one that works for you and your type of trading. After all, it is your strategy.
Another important factor to designing your forex trading strategy is an indicator. It helps to find and use trends when trading. These trends will allow you to see what is profitable and for how long.
And how you find trends is through the use of indicators, namely Trend-Following Tools and Trend-Confirmation Tools.
Since risk is an inherent part of trading, it goes without saying that even the best traders think about just how much they are willing to lose. By putting a distinct number on how much you are willing to lose on a trade, it can prevent you from making rash decisions either based on greed or fear. And saving you more in the long run.
Entry & Exit
Now to the action! After all other things are considered, you need to decide just when are you ready to bid and when are you ready to close out. It all depends on you but when designing your strategy, be sure to consider not just what you’re comfortable with but also what has worked.
Which brings us to our final tip on designing your trading strategy. Test! Test! Test! One of the ways many traders fail is that they do not backtest their strategies and information with historical data. The data is there and it is in your best interest to use it. After all, those who do not know history are doomed to repeat it.