High profitability of the foreign exchange market attracts many people. And some of them do succeed in currency trading. The rest for a variety of reasons leave this profitable occupation, and without starting to trade. There are several reasons for this. But one of the most important and objective is the lack of a trading strategy.
What is a trading strategy?
In order to be successful in currency trading, it is necessary to follow certain rules. At the same time you need to own at least the most basic concepts in the forex market. After all, it is not in vain that this market is called the market of chaos. But this is only at first glance. And if you look closely at currency speculation and methods of generating income from them, it will immediately become clear that in fact the Forex market has a very well-coordinated structure and its functioning is dictated by well-founded and orderly actions of market participants. Therefore, in order to achieve effective trade, it is also necessary to follow all the rules on which currency trading exists.
This set of rules, the principles of conducting analysis, the sequence of actions and is called a trading strategy. In other words, the trading strategy is nothing more than the application of the acquired knowledge and skills in a certain order. It is important to use not all the available skills, but only those that help determine the direction of the trend, resistance levels, and set price limits for possible losses and profits.
What the strategy consists of
At the heart of the trading strategy must be laid down the principles of determining the trend. This can be both technical and fundamental analysis. Many traders successfully combine both types of analysts in their strategies. However, do not be naive to believe that a simple set of indicators or graphical tools can ensure the creation of a profitable trading strategy. Similarly, it can not be built on economic news alone. The strategy, first of all, is a whole complex of knowledge and actions.
If it is preferable to use the same technical analysis in trading, then it is necessary that all analytical tools be selected in such a way that they can complement all indicators for determining the trend in the same way they are obliged to interact with each other in their testimony.
In addition to analytics, the trading strategy must also take into account money management. This item is necessary in order not to make missteps that could lead to a loss, even if there is very effective analytics. In this case it is necessary to take into account the state of the account, the amount of funds involved in trade. But that’s not all. Including the transaction, you need to rationally place the funds for the transaction. This concept includes the size of the leverage, the number of lots offered for bidding. But the most important point, which allows to limit possible losses, is the installation of a stop-loss stopper – stop-loss. Some traders, having absolute confidence in their actions, avoid restrictions. And often this behavior leads to collapse.
Testing the trading strategy
Some novice traders believe that it is quite enough to buy or borrow on the forums for free another’s trading strategy, – and everything, business will go safely. This is one of the characteristic misconceptions of newcomers. To conduct a successful trade, you need to create your own, adapted by the rules of trading. In exactly the same way, all purchased strategies were created for certain behaviors, knowledge, experience of the trader. And in order to start successfully using these skills, you must have exactly the same mindset, such emotional norms. Therefore, the best way out will be to develop its own trading strategy. Naturally, having selected the necessary set of tools for conducting analysis and streamlining the system of actions, you should not immediately start trading on a real account with a large deposit. First of all, you should test the trading strategy. This is usually done on a demo account. For some time, following the rules of the strategy, to conclude deals. And it’s important to do this with different order volumes, thereby improving the deposit management system.
In addition, it will not hurt to test the strategy and the history of trade. Having set all the necessary parameters, it is necessary to drive the system throughout history for several years. And it is desirable to do this in different time intervals. Having made sure that the result is achieved to the extent that calculations were made, you can proceed to real trading.