How to Develop a Forex Trading Strategy

ForexPicture this; your car gets into an accident, and your family is now stuck in a lonely place.  You are worried about how to get the wreck to a mechanic and also how your family will get home safely. Then you remember Manassas Tow Truck offer these services and decide to give them a call. What happens when the team at Manassas gets to the sight? They carefully develop a strategic plan on how to get the wreckage on the tow truck and every other nitty gritty of getting your family home.

Similarly, it comes a time in the career of a forex trader to develop a winning trading strategy. Finding a trading system that perfectly resonates with you might be challenging but not impossible. There are so many strategies on the web and success stories on the same. However, we all trade differently and one trader’s winning strategy does not mean it will have similar results on you. So, you can either purchase one of those plans or tweak it and grind out your own trading system. But the primary concern is how to develop a winning forex trading strategy.

Decide the market condition you are interested in

StockMarket conditions can be split into three groups; range, breakout and trends. During ranging market, prices respect the boundaries of resistance and support. At this point, most traders employ the ‘buy low sell high’ mantra. Although ranges are common in quiet markets where there is little information to move prices higher, ranges don’t last forever. A fast market can easily be highlighted by unpredictable moves such as fresh news that rush traders to bid higher or lower prices. When this happens, the ranges become Breakout. Breakouts can be fast and furious, extremely volatile and run quickly to a trader’s stop or limit. Trends are termed a trader’s best friend. Traders who trade with trends often wait for ‘big’ levels of support and resistance to be broken and they employ the ‘buy low sell high mantra just like in the ranging market. Only that for trend traders, they apply the bias of a trend.

Decide the timeframes

Once you have narrowed down on the market condition, decide on the timeframes you want to analyze and execute your trade on. As a trader, you can use a longer-term chart to examine the general trends that could be existing in a currency pair. You could then use a shorter term chart to get a more granular view as they enter the trade.

Entering the trade

In this step, you need to design how you will be entering the trades. Having multiple mechanisms can help the trader point out the levels that may or may not be pertinent enough. After deciding on the mannerisms of support and resistance to utilize in the strategy, find a way to grade the strength of how the price moves.

Risk management

The manner in which you plan to manage risks is with no doubt the most critical part of creating, trading and maintaining a trading system. As a trader, you may win more often than lose, but it is the number of your gains or losses that will predict whether you succeed or fail in the market. Traders can make use of the risk-to-reward ratios in which one stands to make more if they are right than they could lose if they were wrong.

Execute the strategy

Finally, it is time to trade the strategy that you have developed. Although the forex market never closes, price action can change depending on the time of the day and where the liquidity is being offered from. For instance, the Asian session is regarded as one with slow price action and therefore perfect for traders executing range based strategies. The London session offers liquidity at 3 AM ET. Traders who are at that moment executing the Asian session need to be more careful since support and resistance can be easily broken with the liquidity coming from London. At 8 AM, the forex market experiences even more cash after the United States opens for business. This is often the most remarkable time of the day when both London and New York market centers are trading.

In a nutshell, the concept of forex trading and being profitable might sound attractive, but in practice much more difficult. However, as a trader with a formulaic strategy with which you look to evaluate the market, the experience will most likely be less daunting. The above tips will, without doubt, help you develop a winning forex trading strategy.