How to create an effective forex strategy
A trading strategy is a certain algorithm, which clearly describes the moment to enter the market and the conditions to exit the trading process.
Algorithm of an effective trading strategy Let us briefly remind you the basic postulates of a working strategy algorithm.
A trading strategy should describe the following points: Entry into a trading position; The direction of the order (buy or sell); The level of profit taking (take profit) in the case of a successful development; The level at which losses will be limited (stop loss) if the trade is unsuccessful; The conditions when it is necessary to make corrections (change of "take profit" and "stop loss" values); The conditions, in which you must immediately withdraw from the market.
Only when a trading algorithm takes into account all of the events that can occur during work on the International Exchange Market, the trader will be cold-blooded and reasonable. There is no place for intuition, guesswork, predictions, gambling and other nonsense on Forex. Only a complete (considering all possibilities of events) trading strategy can bring statistical profit (positive sum of all losses and gains) during infinitely long time period.
Are trend-following forex strategies always effective? An effective trading strategy must take into account the fact that prices on Forex can be in an uptrend, a downtrend and in a sideways corridor (flat). Accordingly, our trading algorithm should clearly identify the situation on the market in order to choose one or another set of actions.
Trading strategies that work successfully in a trend, will be ineffective in the price corridor (correction). And trading strategies that are successful in corrections will make losses in a downtrend or uptrend.
Basically, to create an effective forex strategy, you need to describe three processes in the algorithm of actions:
How to determine the market situation; Form an algorithm for trading in the price corridor; Generate a trading algorithm when prices are rising or falling (during a trend).
Every time trader starts his work he should define the market trend, choose suitable trading strategy and follow it till the market situation changes. As soon as the market situation changes, you should choose another trading strategy and start implementing it.
If a trader follows a trend only, during a sideways price movement, he should take a wait-and-see position and stay out of the market until the trend starts.