How To Build A Strong Trading Strategy

[Admin]

A question that you can ask to a lot of traders which will make them freeze is: "What is your trading strategy?". Most of them would answer you after a while "I use moving averages and ...." whatever was the answer they tell, it doesn't give a real answer for the question because it mostly will be just stating some indicators not a complete trading strategy. Even some advanced traders will be answering you that they are trading technically according to strategies like Elliott Waves, they are completely missing that it is just a technical tool not a strategy.

A complete trading strategy should have some requirements to be considered a good trading strategy, for example in a market like FOREX you should take care of some elements and some things to be included in your strategy:

1. More than just one technical tool: a decent strategy should contain at least 2 different indicators, one of them is a leading indicator and the other one is a lagging one while 3 indicators will give you a more slower signal but it'll be a more stronger one.
2. A fundamental rating measurement factor to measure the news effects: this would be a self-established one which can be discovered by testing the news effects on the FOREX market and measure it to establish a factor that suits the trader.
3. The trading time frame: keep in mind that a scalper wouldn't wait to take confirmation from 2-3 indicators on a H1 chart, he is waiting usually for a tick up or down to enter his position, some other ticks and he is out.
4. Your account equity: what ever your trading strategy or trade length, never put all the eggs in one basket, keep an open eye on your equity, not your balance.
5. Risk factor: setup your daily risk ratio and never exceed it if you lost on a day, you'll never get back the money you lost by going emotional and try to achieve revenge. If you have to lose and you already lost the supposed risk ratio, stop trading at that day, have some rest then try to study that position and the mistake that did lead to that losing trade.
6. Daily targeted profit: when you get your target achieved, take rest and save your efforts for studying the next day opportunities. If you are about continue trading, set a stop loss of no more than half the achieved profit and don't go so greedy.

Setting up a trading plan is not a hard task even for beginners, the hard part is to follow that plan, you'll read and know so many strategies, take care as not all of them will suit you. In fact you hardly will find one that will suit you, the best way to achieve a good one to suit your needs is to set it yourself.

Most of traders have a lot of strategies saved some where in their notes or on their personal computers, but who have one that suits him and he can successfully follow it?

[tomiamida]

This note should go out to all beginners. fx trading is an art and these fundamentals/principles will guide you to being sucessful