5 steps to build trading model through trading Forex strategies
Forex is a trading market that never truly sleeps because somewhere around the globe a country is waking up just as another is going to sleep, with new traders waiting to start their day investing. Building Forex strategies to trade on is one of the best ways to trade successfully in this giant financial market. There are tips you can learn on how trading Forex strategies will provide you with profit versus extensive losses.
One important aspect to remember as you decide on trading Forex strategies is that almost any theory including fundamental, price action and technical models can work. Market traders have plenty of opportunities to follow patterns and principles allowing for profitable outcomes or sometimes some acceptable losses. When you trade carefully with a well conceptualized strategy this reduces the losses you sustain and increases the winning trades ensuring you have approached the market systematically and not emotionally.
Think of trading Forex strategies where you conceptualize an option based on the currency pair you are trading. If you have positive results then you can look for opportunities, which if they are positive need to be developed. If the development of the strategy is still positive then you need to look at the practicality of it. If you find it is practical then you have made a decision to stop trading paper and go live with your strategies. You always have to outline your risk management and monitor your failures to ensure trading offers a higher percentage of wins versus losses. If you find at any time throughout the strategizing session that you do not get positive results you can dump that theory and go back to conceptualize a new one.
You may discover that only a portion of the theory you are trading on is incorrect or that it works for some currency pairs and not others. You may not need to dump the strategy all together, if you can fix the errors that will cause failure.
So what does each of these pieces mean in terms of trading?
1. Conceptualizing a strategy
It means you are identifying opportunities that are suitable for an investment of some type. You will have clear entry and exit points, with a look at profit potential, trade time, and risk management criteria. It is during this stage that you may focus on the two most popular trading Forex strategies: news and day trading the breakouts.
"Strategy outlines all the trading criteria and is a heart of your trading model"
o News particularly reports from government agencies like the Federal Reserve or other national banking systems can influence market movements. GDP, employment/labor, non-farm payroll details and others are used to determine if a country is strengthening, weakening, or remaining about the same in terms of economic strength. Of course once the news fades the currencies may go back to before the release of information. It may change the current patterns for the long term, but other influences will again affect how the currency pairs perform.
o With breakout information, you are adapting trading Forex strategies on graph patterns. Perhaps you are looking at candlesticks in which the highs and lows of the day are showing. You would look for the support line where the currency pair is unable to move lower and the resistance line that makes it difficult for the currency to go any higher. If you see certain signs there may be a breakout about to happen, where the resistance line is blown and you can make a tidy profit as a new resistance line is formed.
o Or, you can choose any trading strategy that work here: https://www.liteforex.com/beginners/trading-strategies/
2. Identifying opportunities.
o As you design a conceptual strategy you need to consider if you will trade currency notes, futures, options or derivatives.
o You also have to find the trading pair that best fits the strategy such as the more popularly traded EUR/USD or JPY/AUD pairs for example.
o Moreover, you should take into consideration different currency groups. There are major currencies such as the EUR/USD, minor currencies pairs and exotic pairs that are rarely traded due to high volatility or little movement.
News dependency is a type of specific strategy parameter. Typically, the trader is going to be a short term investor who is looking to assess the news as it happens. When geo-political issues occur whether it has to do with economic reports, war, or macroeconomic figures a trader will get out their model and start trading appropriately. It may be best to set up a fully automated trade based on certain parameters or to have manual access should a sale need to occur. This is another part of the risk management portion that you will need to include in your trading strategy.
You also have to assess the timing of the trade. Are you going to get in before the news going on the sentiment of what the news is going to be and how the market is likely to react or will you wait until the news is out to start trading? Exotic currency trading can only happen during regular business hours of the banks involved as well as when the OTC markets are live, which can limit when you conduct certain trades. Of course you also have AUD and USD pairs where Australia is about to open shortly after the USD market closes. You may find trading volatility is very high or low at certain hours, which affect your ability to trade.
Technical Tools and Fundamental Considerations
News has been a primary focus above, but it also requires a discussion on technical trading. You may decide that Bollinger bands, DMA charts, or other charts and graphs are easier for you to trade on. These are statistical components of the market that allow you to see patterns over a historical and recent period of time. Many believe in patterns they see on these charts and trade on them. However, it is important to still factor in the news and other fundamentals.
Given the variation of traders on the market it is possible for the market to be swayed by one camp of investors versus another. During news releases often the fundamental traders are in play swinging the market in their favor by hopping in on the news they expect or see released. This can disrupt mathematical patterns for a time. At other times trading Forex strategies on technical tools because of the patterns present can make you a tidy profit.
4. Get practical.
Before you place any real money trade it is imperative to test your model with certain objectives in place. You want to look at profit levels to determine the possible pips movements that are likely to occur. You also want to have a risk management strategy in place that has set stop loss levels.
A part of risk management and money management is to know when to get out of a trade before you suffer an extreme loss. This requires mathematically determining the amount of acceptable loss so you can set up a stop loss or trailing stop loss. Once your objectives are in place you can test your trading Forex strategies.
Remember: "“Who wishes to fight must first count the cost” ― Sun Tzu, The Art of War"
If the back testing works then you are ready to try a few cycles of your strategy before determining if you want an automated trade set up for real money. Computer programs allow you to use automated trades where you set up the entry and exit strategies with stop loss or trailing stop losses in place. The order will be fulfilled if your conditions are met and if not you save yourself from losses you did not want to sustain.
5. Trading Forex Strategies on Real account.
You have an advantage when you adopt Forex strategies for trading versus someone who just tries to trade or buys software thinking they can trade without back testing any strategy models. The advantage is leaving the emotions out of Forex trading.
It is extremely dangerous to trade on emotions. If you have emotional attachments to certain currencies you may find more losses than you ever make in gains. You might hit mental roadblocks that affect your ability to continue trading or ever get out of the paper money trading system. Often losses and failures happen because someone is too invested emotionally to handle the trading system.
It is extremely exciting to see wins with substantial profits; however, it won't happen and luck is only going to take a person so far. The wise trader always ensures they have trading Forex strategies in place to avoid the largest, most detrimental failures. This does not mean you stop customizing your perfect strategy.
It is just the opposite—you always customize and reassess after every trade. The market will have new developments. You will have a majority of successful trades, but every now and then something occurs that all signs pointed against.
As long as you are pragmatic in your trading approach you can monitor, improve, and develop several trading strategies
that will keep your capital available for new trades.The only way to keep trading is to ensure your capital remains yours.
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