How to develop your signature Forex trading strategy

Trading in the Forex market is a complex daily work that requires great strength, knowledge and experience. Before a trader starts making money in the foreign exchange market, he goes a long way, making mistakes, seeking solutions and learning from experience. Only a few manage to find the right way, the rest will be disappointed in this kind of activity. The mistake of many novice traders is that they are in a hurry to start trading using ready-made strategies, often mindlessly repeating other people's action algorithms. This is a hopeless way, because in order for the trade to be successful and safe, you need to study the market, the principles and methods of trading, and much more. Below we talk about the development and use of your own, signature trading strategy in the Forex market.

A trading strategy, or a trading system, as some traders say, is a combination of technical and fundamental means of analyzing the market, as well as methods of opening and closing deals on them, working with unprofitable positions and taking profits. Simply put, all those actions that have become habitual for an experienced trader, through which he regularly and consistently makes profit, are called a trading system. In a narrower sense, a trading strategy is an algorithm for entering and exiting positions based on signals from certain analysis tools. Any trader in his trade is guided by signals. Over time, he selects the best indicators, analysis methods, gets used to them, studies the subtleties of their work, and, thereby, forms his own trading model, which we call a trading strategy.

As mentioned above, using someone else’s trading strategy for real trading is fruitless: firstly, there are no guarantees that it is profitable. Secondly, even if the strategy brought profit to its creator, this does not mean that it will bring it to you. There are no universal strategies; any algorithm that works without correction from the experienced hand of a trader sooner or later fails.

So, any trader needs his own strategy. Below we give a few steps when creating your strategy.

1. Selection of indicators, advisors and other analysis tools.

First of all, I repeat: you must understand the algorithm of the work of all these analysis tools and have experience working with them. In addition, a common mistake of many traders is that they are recruiting too many indicators of the same type that only harm trading: while the trader is waiting for a simultaneous signal from all indicators, the time to open a deal is gone. You need to use indicators that complement each other. An example of such indicators are moving averages and various oscillators; almost every trader uses such combinations in his trade.

2. Choosing a currency pair / pairs for trading.

Each currency pair is unique and distinctive. One is distinguished by a large “recurrence”, a large number of kickbacks and their depth, the other by protracted trends, the third by sharp strong movements and high volatility, etc. All these features can be used to your advantage when trading; you just have to study currency pairs well. In addition, there is such a thing as a correlation of currency pairs: many courses repeat the movement of each other. The simplest example of such a copy is the euro / dollar and pound / dollar pairs, the movement of which is often almost the same.

3. Choosing trading style

Depending on the deposit, goals and opportunities, you can choose different degrees of risk. 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.

The choice of timeframe depends on the trading style. It is believed that longer timeframes are more suitable for long-term trading, starting from one hour. Scalpers, on the other hand, prefer to work on minutes, five-minute charts and, rarely, on large periods.

The principles of money management should also be included here: to increase the profitability of trade, for each transaction a larger percentage of the deposit should be used, of course, due to the part that, with more moderate risks, should be free and insure us in case of an error.

4. The choice of principles for fixing profits and working with losing trades.

It would seem that everything is simple with profit – all you have to do is fix it. In fact, experienced traders are constantly looking for methods to help maximize this profit. Often we close trades too early, and the price movement continues, we lose potential profits. To avoid such cases, use methods such as traling-stop or partial closing of transactions. As for the losses, it is necessary to choose between their fixation and methods for turning plus the losing trades. If everything is clear with the former, the latter implies various methods of averaging, “martingale”, “locking”, etc.

5. Technical points.

After the principle of trade is approved, and the strategy has been created, it is worth thinking about some possible limitations that work with brokerage companies may imply. Examples of such restrictions can be open transaction limits, a ban on a one-time opening of transactions for one pair in different directions, and others. Of course, such restrictions for the majority are not a hindrance, however, some strategies imply such actions. In addition, if the strategy involves the work of an adviser, then you should take care of hosting for him. If you are a "scalper" and spend 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 with a specific customer deposit.

Before you start trading real money with a new strategy, do not forget to try it on a demo account. If there is an opportunity, it is better to order the development of an adviser for your strategy, which will help to test it on large time periods and on the most difficult moments of history. You can order the creation of an advisor on any forum.

Your unique trading strategy is not only a transparent algorithm that simplifies the search for signals and entry into the market. The trading strategy also solves many psychological problems, precisely indicating the points of opening and closing of transactions, the size of profits and losses, saving the trader from unnecessary decision-making. But it is not worth while fully relying on your own strategy. The market is changing with time – what worked consistently yesterday, may fail today, and stop functioning at all tomorrow. To avoid this, it is necessary to track such market changes, adapting your trading algorithm to them.

Author: Kate Solano,
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