One step towards being a profitable trader is having confidence. In order to achieve this you must trust your trading strategy and what could be more appropriate than developing your very own forex strategy.
Creating a forex strategy is actually a very simple process if you follow this simple guide. Every trading system has at least three key elements:
1) timing your entry
2) timing your exit
3) contract size
You must create clear rules for each of this three steps. Let’s create a system right now! free forex strategies
1) Entering the market
Rules for long trades:
- 5 SMA must cross above 8 SMA
- slow stochastic must be crossed and coming from the oversold zone
2) Closing a trade
You exit the market either when profit target is hit (50 pips) or when stop loss is triggered (25 pips).
3) Contract size
You calculate the lots based on your risk tollerance.That means that if you have a balance of 10000 usd and you don’t want to risk more than 2% (200 usd) you divide that amount to the number of pips in your stop loss. 200/25=8 so you can trade 8 mini lots (1 usd/pip).
That’s it. We’ve developed a forex system. What to do next? The first thing you should do right after, is manually backtesting it with a trading platform (i suggest metatrader). If results are promissing try it on a live demo account for at least three months. If it passes this test too than you are ready to test it on a live account with real money.
But what if the backtesting is not so promising? You can try applying filters to avoid whipsaws like “rsi must be above waterline for long trades and bellow for short trades”. Try different filters and see what happens. You can learn more about foreign exchange by visiting my blog free forex trading strategy
Another important aspect when developing a forex strategy is choosing a chart. If you are a day trader you will probably choose smaller charts like 4h,1h or 15 minutes. Anything smaller than 15 minutes seems noise. Instead if you are a position trader you will want to focus your attention to bigger charts like daily, weekly or even monthly charts. More complex strategy use multiple timeframes.
You should keep in mind that a good strategy must produce constant results over a long period of time without much drawdown.
Also you should test it on different currencies and choose the one that suits best. In this example a 25 pip stop loss may be appropriate for a pair like fibre but for geppy 25 pips is a sniff so be careful.
So why buy forex trading strategies. I just don’t see the point. If you have a winning strategy that is 80% profitable why bother with selling it for pennies when you can make millions on the fx market?
Read about Forex market and free Forex signals on this blog.