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15. Winning Forex Strategies
When learning how to trade Forex online you should look to how professional traders invest their money.
Ask yourself the following questions:
- How did they become successful traders on the Forex market?
- Are they day traders, or swing traders? Are they fund managers, or are they professional traders trading for themselves?
- What are the best Forex strategies they use in order to trade successfully?
- How did they realise that their trading strategy worked with the current market conditions?
- How did they adapt their trading systems to changing market conditions?
- What are their actual trading techniques to make their trading performances consistently profitable?
- How did they develop good trading habits?
These questions will help you think about your situation to understand how to make money on Forex – what to do, and what not to do. Learning how to develop a profitable Forex strategy to achieve Forex success is the must-have tool to make money trading.
Of course, having a Forex strategy that is profitable is useless if you’re not aware of the psychological biases that push you away from actually using your trading system.
So, let’s review how you can develop a winning Forex strategy that you can stick to.
Steps to develop your winning trading strategy
- Determine which kind of trader you are
- Choose which trading style suits you best
- Describe your method to of entering/exiting the market
- Define your risk
- Back and forward-test your system
Why is it so important to figure out your trader personality profile?
The power of knowing which kind of trader you are will allow you to focus your time, energy and attention on developing Forex trading strategies that work with your trading style.
Sometimes the best way to make money for one trader can be a poor fit and a losing strategy for another investor.
Learning how Forex trading works and how to make it profitable is hard enough, so working on strategies with the highest probability of working out for you will simplify the whole process and give yourself a better chance to succeed.
How to determine your trader profile:
- Why do you want to start trading in the first place?
- What do you hope to achieve?
- What is your general knowledge of the markets and their correlations, trading, money management, trading psychology, trading platforms, Forex brokers and financial products?
- How much education will you need before starting trading?
- How often will you be able to trade?
- Will your dedicated trading time be fixed, or do you have to be flexible?
- What will your risk level be?
- How well can you control your emotions and your stress?
- Do you prefer to see the results of your trades within the same day, or can you wait a few days for your trades to play out?
- How often would you prefer to check your trades?
- Will you use technical analysis or fundamental analysis to determine your entry/exit setups?
- What amount of money can you invest in Forex trading?
Once you’ve answered all these questions, you will start to see where you fit within the trading spectrum. There are a few different categorisations within which you’ll fit:
- A trading timeframe preference: day trader, swing trader, position trader
- A type of trading analysis preference: technical trader, fundamental trader
- A risk tolerance preference: risk-averse, risk neutral, risk loving
- Are you aware of the different trading styles?
These two kinds of trading are the most active and aggressive type of currency trading, as they both imply that all your trading positions will be opened and closed within the same trading day.
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Scalping trading in the FX market is about buying and selling currency pairs with a target of a few pips, held for no more than a few minutes (or even seconds). Day trading targets more pips and positions can be open for a few hours.
These trading styles work with very short-term trading strategies and increase returns. Leverage is often used, which means that there is a greater risk of large losing trades.
Both strategies can be stressful and require being able to stay extremely focused and available in front of the charts to make (very) quick profits.
Scalping and Day Trading is for you if you:
- Don’t like to hold your positions overnight, and prefer intra-day trading
- Like to know if you earned or lost money at the end of your trading day
- Tolerate a certain level of risk
- Are available to be in front of the market and quickly react to trading potential opportunities
- Are stress-resistant
- Like fast paced trading
This trading style is a longer-term approach based on taking advantage of changes in the momentum of a currency pair within a main trend.
It’s often considered a continuation of day trading towards position/trend trading, which is a trading style following the long-term trend of an asset.
Swing trading requires a lot of patience, as you’ll be holding your trading positions for several days or weeks. It’s ideal for part-time traders, as they don’t always have the time to analyse the market.
Swing Trading is for you if:
- You don’t have much time to spend in front of the screen(s) every day
- You can hold onto your positions for days/weeks
- You can’t put up with high stress and aggressive trading
- You can’t deal with fast moving environments
When figuring out which trading style best suits your personality, you need to take into consideration all of the following elements: your current schedule, your attention span, and your risk aversion.
Consequently, you need to match your selected timeframe with your lifestyle and personality.
With swing trading, you may stay in position from a couple of days to a few weeks, while using 4-hour to daily charts. With scalping and day trading you will stay in position anywhere from a few seconds to a day, using anything from 5min to hourly charts.
There are a few types of trading strategies that could be a good fit for your personality. You could be a noise trader, a sentiment trader, an arbitrage trader, and a market timer, but the most common ones are technical traders and fundamental traders.
Technical traders use technical analysis to analyse an asset’s price movements using past prices to forecast future price action.
They use support and resistance levels as well as mathematical and technical indicators such as:
- Elliott Wave
- Moving Averages
- Moving Average Convergence Divergence (MACD)
- Average Directional Index
- Pivot Points
- Stochastic Oscillator
- Relative Strength Index (RSI)
Fundamental traders look at fundamental factors to determine the intrinsic value of a financial asset and define if it’s undervalued (or overvalued), and whether or not the asset should be bought (or sold).
A fundamental Forex trader will predominantly use news trading or currency carry trading strategies, mostly based on interest rates changes that have the highest impact on the evolution of exchange rates.
On the Forex market, traders usually rely on technical analysis to enter and exit the market, while still keeping an eye on the economic calendar to keep abreast of news that can affect market volatility and trigger potential trading opportunities.
Once you know which kind of market analysis to use with your trading style, you have to spot and understand the market phases. There are different tools and indicators that work best under certain market conditions.
This will help you determine your Forex entry and exit strategies setups.
Understand market cycles and phases
Technical analysis is based on price action trading with the help of technical indicators and charting tools, such as support and resistance levels.
This type of analysis studies the past price movement of an asset to determine its future direction.
The 3 premises of technical analysis are …
- All available information is instantly taken into account within the price
- Price moves in trends
- History repeats itself
We can then assume that markets always follow the same path, through different market phases and cycles.
Knowing these different phases and the associated scenarios can help you spot better trading opportunities with the right trading tools to maximise your returns:
- Bottom / Consolidation
- Breakout & Pullback
- Early trend
- Pullbacks & Consolidation
- Late trend
- Market top
- Breakout & Pullback
- Consolidation & Pullbacks
- Early trend
These periods describe the psychology of market participants during the accumulation, public participation, and distribution phases of a market cycle.
Know which chart patterns work with which market cycles and phases
To increase your returns, you should first recognise the market phase you’re in and know which indicators and tools work best, as they’re designed for very specific situations.
When markets are rangy, this means that they evolve sideways between two nearly identical highs and lows, creating support and resistance levels.
Oscillating indicators, such as MACD, RSI or Stochastic, are used to spot “overbought” and “oversold” situations, and will be more helpful to you than a momentum indicator under such circumstances.
Other examples: Momentum indicators work best with trending markets and reversals, but not so much during consolidation or pullback phases, while moving averages are used during trends, but are useless during consolidation phases.
When using candlestick charts, it’s essential to know about the most important Forex candlestick patterns – these can be divided into 3 main categories: confirmation, reversal, and indecision.
- Bottom/Consolidation: rectangle, channel, trend lines, support and resistance levels, oscillators such as RSI and Stochastic, and candlestick bullish reversal patterns such as bullish engulfing, bullish harami, hammer, morning start, and piercing patterns
- Breakout: rectangle, channel, trend lines, support and resistance levels, momentum indicators such as MACD, and strong bullish candles such as the marubozu
- Pullback: channel, trend lines, support and resistance levels, moving averages
- Early trend: trend lines, momentum indicators, moving averages
- Late trend: trend lines, moving averages, momentum indicators
- Market top: trend lines, support and resistance levels, oscillators, and reversal chart patterns such as head and shoulders and double/triple tops, and bearish reversal pattern such as shooting start, dark cloud cover, bearish engulfing, and bearish harami
Define which trading conditions are best for your trading style
Whether you’re using a short-term approach such as the Forex scalping strategy, or a longer-term one like swing trading, you need to determine specific set-ups to be profitable, such as:
- Forex arbitrage strategy
- Forex pullback trading strategy
- Forex trend strategy
Once you know which trading conditions you prefer to trade – rangy markets, trending markets, volatile/non volatile markets, pullback or breakout phases – you can specialise in the market phase and learn how to master the trading indicators and tools associated.
Or, instead of having one single trading strategy, you could also develop several trading systems for each of the major market phases to better adapt your trading to market conditions, using specific technical indicators, drawing tools, and candlestick patterns.
Define your risk while following sound risk and money management rules
Determining your risk is all about knowing how much money you’re willing to lose on each trading position. Thinking about losing isn’t easy, but is necessary to be a good trader.
Knowing the appropriate level of risk depends on each trader and his relationship to risk, as well as how well a trader knows themselves.
There are common money and risk management rules you can follow, such as:
- Only use the money you can afford to lose
- Adapt your risk management to your trading style
- Use the right position size
- Always use stop-loss orders
- Set your risk/reward ratio to a minimum of 1:3
- Invest less than 2% of your available trading capital per position
- Avoid over-leveraging
Leverage is a great tool to use to increase your potential profits, but it also increases your potential losses, so use the right amount of leverage for your trading capital and risk tolerance.
Why should you test your trading strategy?
Once you’ve determined which kind of Forex trader you are and what kind of trading style suits best your personality, you need to test your trading strategy with historical data (back-test) as well as with current market conditions and actual trading (forward-test).
This will help you be more confident that you’re using a system that makes money, as well as uncover what market conditions are most profitable.
It is also practical to objectively analyse the reliability of your trading strategy and make any necessary changes to improve its efficiency before using real money on a live trading account with it.
What is back-testing?
Back-testing is the testing of your trading strategy on a set of historical data, as if you were trading at that time using your selected strategy.
If the results turn out to be profitable, then your trading strategy has a positive expectancy and you would have made money with it at that time.
To get the best results possible, you can refine some of your parameters.
However, it’s important not to tweak your variables too much, as you would be creating a trading system that’s very specific to the specific market conditions that are inherent to the particular historical data that you used.
As a result, your strategy would likely fail to adapt itself to future price movements. This phenomenon is also known as “curve fitting”.
What is forward-testing?
While back-testing focuses on a particular set of data with specific conditions in the past (or “in-sample” data), forward-testing broadens the data on which you test your strategy, using live data (or “out-of-sample” data).
Forward testing, often called paper trading, uses a simulated market environment to test your trading system under real-world conditions without putting real money at risk. It works by recording all the buying and selling trading decisions that you would make according to your trading system, and seeing what your “paper” profits would be if you had traded for real.
One way to paper trade is to open a “demo” account – a trading account that mimics real-time market and trading conditions with virtual funds, so then you can determine if your strategy makes more profitable trades than losing trades.
Whether you’re a novice trader, or a more advanced one, paper trading is necessary in your trading journey. As a trader with no previous experience, paper trading is great for getting used to the markets and how trading works, as well as to progress without risking any loss.
If you have more experience, you may find it useful to paper trade to refine your trading system without putting money at risk.
Which data should you monitor?
In any case, the main goal of back-testing and paper trading is to test the proficiency and adeptness of your strategy and its capacity to maintain winning trades with positive gains.
For this, you need to have a certain amount of data about your trading:
Know your data:
- Date and time of the opening and closing of your positions to compute the length of your position
- Direction of your trade: long or short
- Opening and closing price to compute your P&L
- Kind of trading orders used: market, limit, stop, OCO
- Why you opened/closed your positions
- How you felt before/during/after a trade
- How stressful/confident you were
- What the easiest/hardest part was while trading
Using a demo account gives you access to a lot of data:
- Number of trades
- Average win
- Average loss
- Average risk to reward ratio
- Average trade time
- Probability of win
Number of winning trades / total number of trades
- Probability of loss
Number of losing trades / total number of trades
- Trading expectancy
(Win rate*average win) – (lose rate*average loss) – the amount a trader can expect to make back from every dollar he risks over the long term
- Profit factor
Gross winning trades / gross winning loss – to know if and how a trading strategy is profitable and adapted to the trader’s risk tolerance
The visual representation of the cumulated P&L over a period of time, which illustrates whether the trading account is making money (ascending curve), or losing money (descending curve)
- Maximum Drawdown (MDD)
The maximum loss from peak to valley of an investment portfolio – this is a volatility measure that helps to determine the right amount of risk for better capital preservation
Trading expectancy and Profit factor are among the most important statistics to determine what needs to be changed in your strategy.
Trading expectancy is all about the average amount of money you can expect to win/lose per trade. Knowing how much your system can generate will definitely help you better manage your expectations and emotions.
Another important thing to understand is that you don’t need to target the highest win rate possible, because this isn’t necessarily indicative of a high performing strategy.
The same applies to a low win rate – having a low win rate doesn’t necessarily mean that you’re losing money.
It all depends on how much you win when you do!
Everything has to be put into perspective in relation to expectancy.
Let’s say that your trading system wins 40% of the time (therefore losing 60% of the time). Your average win is about 10%, while your average loss is about 5%.
With a trading account of US$10,000, your expectancy is positive (US$100):
(0.4*$1,000) – (0.6*500) = $400 – $300= US$100
Your trading system makes money because you have a positive expectancy of $100, even though your strategy produces losing trades 60% of the time.
Let’s say your trading system wins 70% of the time (therefore losing 30% of the time), while your average win is about 5%, while your average loss is about 17%.
With a trading size of US$10,000, the expectancy of your strategy is negative (-$160):
(0.7*$500) – (0.3*$1,700) = $350 – $510= -$160
This trading strategy loses money because of a negative expectancy of -$160, even though your system produces winning trades 70% of the time.
Profit factor is an easy measure of the quality of your trading system. This number can help you identify the strategy with the highest returns and the lowest level of risk possible.
If your trading strategy has a profit factor greater than 1, then your strategy is profitable. However, a profit factor lower than 2 indicates that the risks you’re taking are too high for the amount of potential return.
Let’s say that your winning positions have earned US$500, and your losing positions are at US$350. Your profit factor will be 1.43, which means that you’re making money, as when you invest US$1 you get US$1.43 back, which can be risky over the long term.
Profit factor is an important tool when dealing with risk and money management.
Demo trading account vs. Live trading account
Moving from a demo account to a real account isn’t as easy as you might think, as there are some differences to be aware of that can affect your trading performance.
These differences in trading performance are typically technical and behavioural.
Demo accounts usually simulate an ideal trading environment, which is quite different from the real world. This is especially true when it comes to processing orders, execution latency, re-quotes and slippage.
Trading with a demo account is, psychologically speaking, completely different – you’re not using your own money. Most traders underestimate the importance of trading psychology in their performance, emotions often take over reason and technique.
Another psychological factor is the fact that a demo account will offer you more virtual funds than what you would normally use, which nudges you towards making riskier trades than what you would otherwise do in real-life.
When deciding how you should start Forex trading , remember to follow these 5 steps:
- Determine which trader you are
- Choose which trading style suits you best
- Describe your method to enter/exit the market
- Define your risk
- Back and forward-test your system
Whether you’re using a simple Forex strategy, or a more advanced Forex strategy, you need to master it before you start trading for real.
How to start Forex Trading with PaxForex
You will click on the “Register account” on main page.
Click on “Open Account” in our website menu and choose “Demo Account”. Fill in the form. Receive the Confirmation code in your email and confirm your registration. You are going to receive email in your inbox – “myPaxForex and MT4 login details”. Be sure to check your spam mailbox if you are unable to find the two emails.
Download and Install the MetaTrader 4 Forex trading platform.
Log in to MT4 Trading Platform.
Find a good time to enter a trade.
Find the best moment to enter the market and exit the market (Pivot Points). You can do it with help of Technical and Fundamental analysis.
Make your trade.
Open Short or Long positions.
Wait until your desired target is met.
Close your order and receive profit.
Develop a profitable trading strategy on the Forex Demo Account.
Familiarize yourself with the various currency pairs and the MT4 trading platform and learn how to make deals and set up orders. Develop a profitable trading strategy that can generate profits constantly.
Open a Live Forex trading account.
Login in to myPaxForex
Go to menu “My Accounts”
Click “Add New”
Choose “Account Type”, ”Account Currency Leverage” Click button “Create”.
You must receive a confirmation email with the subject “Trading Account successful activation” in your inbox; check your spam folder if you are unable to find it.
Login in to myPaxForex and Upload Documents
Log in to MetaTrader 4 Live Forex Trading Account.
Make Profit using profitable Forex Trading strategy.
Using a strategy that you developed while using the “Forex Demo Account”, find a currency pair that you want to trade, open a trade either long or short, set your ‘Stop Loss’ and ‘Take Profit’ prices, then wait for the MT4 ‘Take Profit’ to trigger and close the trade.
Repeat previous step until you will satisfy with results.
Time to time withdraw profit.
Why you should start forex trading?
- You don’t need a large sum of money to start your forex trading
- Forex creates an additional source of income, which can significantly exceed the income from your main job;
- You can earn with a minimum time spending. It takes just several minutes to open a trading and even less to make money on it;
- The forex market is the largest trading field in the world, much larger than the stock market;
- Forex trading, with the right strategy, can significantly improve your financial situation during the global financial crisis.
- Start forex and achieve your financial goals.
- You can work anywhere in the world and don’t need an office;
- Your forex profit is limited only by your goals.
How to start in forex?
The main rule of Forex trading is “buy low – sell high”.
Forex is an international market where currencies are traded. The main purpose of forex trader is to buy a particular currency cheaper and sell it more expensively. With skillful trading, you can earn up to $ 1,000 per day.
Suppose yesterday you bought 1 Euro at the price of 1.17 dollars. Today you sell 1 Euro at the price of 1.18 dollars. Your profit will be 0.01 USD (1.18-1.17 = 0.01). Of course, this amount is quite small. But imagine that you bought not one 100.000 EUR. With the same market conditions, your profit will be equal to the sum of 1000 USD! How is this possible? By using the leverage provided by the forex broker!
For example, with a trading leverage of 1: 500 you need to invest just $200 to trade with a volume up to $100.000!
Of course, as in any other kind of investment there is risk of loss. The good news is that in the forex market, you can’t lose an amount exceeding that which you have invested.
The art of trade in the forex market is predicting the right time to buy or sell certain currency. Forex traders are constantly carrying out research and analysis of market data and international trends, to decide which currency to trade for maximum profit.
Any major event, in economic or political life, can have a direct impact on the currency market. Using fundamental and technical analysis, experienced traders get a better idea of why prices are rising or falling, and what currency to give their preference.
The key elements of success in the forex market are the experience and knowledge. Our company gives you a full necessary knowledge, while gaining experience is entirely a trader’s prerogative.
With a sufficient time and effort to assimilate the knowledge and mastering the practice, you will significantly increase your chances of successful trading in the forex market.
Starting Forex trading: First trading strategy
If you are looking for forex trading strategies then check out these amazing free list of forex strategies below:
BASIC FOREX TRADING STRATEGIES
If you are beginner to forex trading and just starting out, the following forex trading strategies are suitable for beginners. These trading strategies are very easy for newbie forex traders to understand and implement:
SIMPLE FOREX TRADING STRATEGIES
The following simple forex strategies here would also suit beginner forex traders. Even advanced forex traders would find these forex trading strategies useful:
COMPLEX FOREX TRADING STRATEGIES
These forex trading strategies are bit complex as it would take a little bit of time for a beginner forex trader to understand so if you are up for it, here they are:
ADVANCED FOREX TRADING STRATEGIES
These forex trading strategies here are bit more advanced. If you are a forex trader knowledgeable in forex technical analysis, then these forex trading strategies should not be difficult for you to understand and maybe you’d be already familiar with some of the trading strategies and systems listed here as you would have probably come across them in some forex sites before.
Or there may be some strategies on this list that you’ve not seen before and it may work out well for you. Here they are:
OTHER FOREX TRADING STRATEGIES & TRADING TECHNIQUES & IDEAS
There is no holy grail forex trading strategy. If you are looking for one, or think there is one holy grail forex trading strategy or indicator out there, you are greatly mistaken.
As a matter of fact, the more simple a forex trading strategy is, the chances are you will make money using that strategy…with proper trading risk management off course.
There are many forex trading strategies that you can chose to work with in this website www.swing-trading-strategies.com.
Test each forex trading strategy out and see which one works for you.
Its because I can give a forex trading strategy to 2 forex traders but each will have differing results with the same trading strategy.
This may be due to a couple of reasons and the two main ones are:
- the forex trading strategy may not fit the trader’s personality.
- each may use differing type of risk managment
FOREX TRADING STRATEGIES THAT WORK AND WHY
Forex Trading requires you to have have forex trading strategies and systems that work.
Now, know this… Not all forex trading strategies will give you 100% trading success rate.
But what really differentiates the best forex trading strategy from other trading systems is EDGE.
What is the Edge? Well, let me explain… Edge means:
- the trading system must have a set of definable circumstance(s) that are present in the market
- and these definable circumstances must have a statistical significance and
- therefore are likely to result in an outcome with a better then average probability of success.
If you have a forex trading strategy and you can’t easily define the trading system’s edge and explain exactly why it works, then what that means is that this trading system does not really have an edge at all and may wont be worth using.
Now let’s dig deeper…
#1: The trading system must have a set of definable circumstance(s) that are present in the market These are things like:
#2: These definable circumstances must have a statistical significance
What this means is that there should be a measurable rate of success by following a particular set of definable circumstance:
- What’s your trading success rate like following trend trading?
- What your trading success rate like when you take a trade based on the support and resistance
- What’s your trading success rate like when trading based on chart patterns?
- What’s your trading success rate like trading based on pivot levels?
- What’s your trading success rate like trading based on fundamental analysis?
- What’s your trading success rate like trading based on certain candlestick patterns?
- What is your trading success rate like on trading based only on certain timeframes?
You need to be able to quantify these. In order for you to do that, you need to trade over a period of time…the longer the better to have a reliable statistics on your trading success rate.
The problem is: you’ve got be be 100% following the rules of your trading system and you can only count those trades that you’ve followed perfectly to the letter.
Any trade that did not follow the trading system’s rules should never be included in your trading success rate calculations.
#3: This must Result in an outcome with a better then average probability of success
For example: you’ve tested your forex system out for 6 months and you success rate was 30%.
Success rate of 30%. That’s bad!
Not really, dude!
You see… A trading system with a 30% success rate can be an extremely profitable trading system! How? Let me give you an example: You place 100 trades over 6 months…that means with a 30% success rate:
- 30 trades were winners
- 60 trades were losers
- for each trade you placed you risked only 2% of your trading account
- and for each trade that was profitable, you made 5%% profit (each trade)
Which means at the end of 6 months these would be your balance sheet:
- 2%x60 loss trades =120% cumulative loss
- 5%x30 winning trade=150% cumulative profit
- 150%-120%=30% profit
So can you see how even forex trading strategy with a low success rate can be profitable?
From this analysis, the following conclusions hold true:
- a forex trading strategy can have a low success rate but still be profitable
- the key to being profitable in a low success rate forex strategy is control your risk per trade.
- That risk should be fixed and should not be variable. An trade taken with a high risk is all take to make you unprofitable. This is for a low % wining rate forex strategy.
How do you gain an edge with your forex trading strategy?
Here are a few tips…
#1:TRADING WITH THE TREND
Many forex traders agree that trading with the trend is an edge . I will also agree to that because you are in a trend, its much easier making money by going with the “flow”.
#2:TRADING ONLY LARGER TIMEFRAMES
Many forex traders also agree that trading in the larger timeframes like 4hr and daily timeframe gives you an edge because it reduces the “noise” or fluctuations that happen in the smaller timeframes.
The shorter the timeframe, the greater the randomness and less reliable the trading signal is and less profit you can expect.
But when you are looking at a daily chart or weekly chart, that noise or randomness is greatly reduced, and thus you have increased chance of success.
#3: TRADING ONLY SUPPORT AND RESISTANCE LEVELS Some forex traders believe that trading based on support and resistance levels gives them an edge.
These traders use the psychology of support and resistance levels to gain an edge to trade in these levels.
#4: TRADING ONLY CERTAIN CANDLESTICK OR CHART PATTERNS
Some forex traders believe that certain candlestick patterns like the pin bar or certain chart patterns gives them an edge and they tend to follow these religiously.
#4: TRADING ONLY DURING CERTAIN DAYS OF THE WEEK OR CERTAIN HOURS OF THE DAY
Some trades believe that trading only in certain days during the week or certain hours during the day increases their success rate.
From my own experience, the days I tend to lose most is Mondays & Fridays.
Knowing that, I tend to trade lightly during these days.
The hours that I find really good to trade are during the UK session and NY session because that’s when there is more trading volume.
#5: USING STOP LOSS AS AN EDGE
If a trading system can’t pick a market’s top or bottom then it stands to reason that almost every trade taken mechanically will be ‘in the red’ at some point.
If the market moves in favour of your trade the moment you enter it, and it continues to go your way so your trade is never under water at any point in it’s life time then it is simply down to luck.
The market moving against you (particularly at the beginning of a trade) therefore does not mean that your trade was a bad one; in fact it is to be expected.
A trading system therefore needs to use a fairly large stop-loss.
Therefore it stands to reason that adding stop losses tends to degrade the performance of a trading system to some degree.
Using a very small stop loss can also mean that you will always lose when the system takes a bad trade…and also when the system takes a good trade, you will lose because you will most likely get stopped out due to your tight stop loss.
#6: NOT ALWAYS IN THE MARKET AS AN EDGE
You don’t always have to be in the market to be profitable.
Many forex traders find it profitable to trade discretely, with no particular pattern at all.
They may trade on Tuesday and won’t trade anymore for the week. Then next week they may trade on Wed & Thu only. These traders have learnt to trade only when the odds are in their favour.
So they don’t need to trade everyday of the week. Heck! They may even only trade twice a month!
THE BEST FOREX TRADING STRATEGIES-MY CONCLUSION
I will conclude this article by saying the following about the best Forex trading strategies:
- The best forex trading strategies are long-term and trend following in nature, that is they seek to gain an edge from the effects of the longer term underlying market trend and give that edge time to work.
- The best forex trading strategies do not seek to pick tops and bottoms and therefore use fairly large stop-losses.
- The best forex trading strategies use larger timeframes to avoid the noise and randomness in smaller timeframes.
- The best forex trading strategies are tailored for certain types of markets, but not curve fitted.
- The best forex trading strategies only seek to trade when market conditions are actually favorable and are therefore not always ‘in the market’.
So there you have it. These are the holy grail of forex trading strategies!
You may disagree with me, but I hope you find this useful. Please like or share or tweet!
Here’s What Will Happen If You Practice One Trading Strategy 10,000 Times
Besides a little bit of luck both mentally and physically, the best professional athletes, business people and traders all have two things in common that have made the biggest contribution to their success…
Those 2 things are:
- Habitual practice of the processes and (or) concepts that will bring them closer to their end-goal / success.
- Complete discipline and focus on the task at hand until TOTAL mastery is reached. Then, they work to maintain it and add more ‘weapons’ to their arsenal.
This article is going to discuss how and why you should narrow your focus in trading, so that you are eliminating variables and truly perfecting your craft. The people who make the most money in this world all have one thing in common: they are VERY GOOD at a small amount of things or even just one thing. Ever heard the saying “Jack of all trades, master of none”? Think about that for a minute because it’s true and especially so in trading. The consequences for not becoming a “master” of your trading strategy are severe, whereas in other professions that may not be so.
You need to read this article, all of it, so that you truly learn why you need to practice one trading strategy “10,000” times and also, so that you learn how to do it. This lesson, if properly comprehended and implemented, has the power to transform your trading from losing or breaking even, to winning. The following Bruce Lee quote was the inspiration for today’s lesson:
“I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick, 10,000 times.” – Bruce Lee
What Do The World’s Greatest Traders All Have in Common?
I don’t care what you have heard or what you think, the best traders in the world and even hedge fund managers are nothing if not insanely focused and masterful in their trading approach.
The reason for this is that these traders know you simply cannot make money in the markets consistently if you have a “scattered” trading approach that is a messy combination of many different methods. What you need is one or a small handful of simple technical analysis tools or patterns to properly analyze and trade the charts.
The best traders have practiced and employed one core trading strategy hundreds or thousands of times over their career; they are not practicing and trying to utilize many different trading strategies nor are they jumping from one trading style to the next. It takes time for any trading strategy to be learned and mastered and then more time to see it played out over a series of trades.
Here are some of the core traits that you will need in order to start being more focused on one trading strategy and eventually becoming a master of it…
Total Focus and Discipline
Focus and discipline are paramount to any life endeavour, everyone agrees on that. However, when it comes to learning one trading strategy and mastering one strategy at a time, it becomes even more important (and perhaps difficult).
You will need focus and discipline to stay committed to one price action signal at a time, for example. So that means you are not jumping at every single candlestick pattern you see on the charts. Instead, you have pre-decided you will learn one at a time and MASTER it before moving on to the next. You will accomplish this simply by picking one and learning as much as possible about what it looks like and how it’s traded and then start looking for it on the charts.
For example, you might decide to master the pin bar trading strategy first. OK, so if that is what you decided, you will learn about all types of pin bars, how they are best traded, which chart time frames are the best to trade them on and more. Your mission is to become a “pin bar expert”, here’s how you do that…
Become an Expert at Your Craft
As Bruce Lee said, he “fears not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick, 10,000 times.” Now, why would he say that? Because practicing 10,000 kicks one time is essentially a gigantic waste of time that accomplishes nothing. The human brain needs repetition and habit to form more solidified neural pathways that make us become better at things, whether that is playing the piano or trading a specific strategy. The more you do something, the better your brain (and you) get at that thing.
Pro athletes, chess players, poker players, business people, hedge fund millionaires, actors, etc. they all know the secret to life and wealth; become an expert at your craft. Of course, first you must decide on your craft, which in trading means your trading strategy. Sadly, many traders never even get this far, they simply are too scattered and confused and possibly overwhelmed with all the conflicting information on the internet to actually decide on one particular strategy.
Now, since you are reading this and are probably interested in price action trading, we are still using the example of the pin bar signal as discussed in the previous section.
The way or the “how” to master one particular trade signal at a time lies simply in the focus and discipline we mentioned earlier. You can print out examples of the signal, study the signal from courses and mentors and look for it on the charts. You need to learn everything about it so that you reach the point of being able to open up your charts and instantly recognizing whether a quality pin bar signal (or the signal of your choosing) is present, or not.
Master One Trade Setup. Only Then Can You Add Another
If you’ve been reading my lessons for any length of time you probably know that mastering one setup at a time is a favorite “mantra” of mine and a core belief that I hold about trading and about what a trader should do especially early on in their career.
The reason why you need to commit to mastering one setup before adding any others is primarily because this gives you something concrete to do, to stay accountable to. Most traders have trouble with discipline and focus and a lot of the reason why is because they simply are too distracted and overwhelmed by all the information on the internet, they can’t make a decision. Decide, commit to doing this and you will start to see the fruits of your decision as time goes by. If there is one thing I can promise you about trading, it’s that the slower you take things and the more focused you become, the faster trading success will find you.
In a recent article I wrote about mastering one thing to reach trading success, I discucces a book I had read recently that was fittingly tilted “The One Thing” (I suggest you read it). In short, it’s about how the greatest people and companies that have achieved massive success always tend to be masters of one core process or thing; they perfect that thing and then keep repeating the process. They simply stick with the one thing they are good at and scale from there. Sound familiar? If so, it’s because it’s the same thing that I am saying to you about trading; master one setup, one strategy at a time and then build off of that, don’t trade in a random, mishap way.
Here’s an example:
You are mastering the “pin bar signal” first. One of the variations of the pin bar is trading a pin bar after a pull back within a trend. Trading a pin bar on a pull back means when you see a strong trend underway, wait for price to pull back to a horizontal level such as support / resistance, a moving average, 50% retrace or even previous event area and form a pin bar in the direction of the underlying trend.
You are looking to enter at the 50% area of the pin bar. In other words, you are waiting for price to retrace halfway up the bar and then entering near that point.
You see this is quite specific and so it’s much more than just “trading a pin bar”, there are many different variations of each of the core patterns I teach, which I get into in detail in my trading courses, but for now, let’s look at this one specific pin bar example:
In the first chart below, we have zoomed out a bit so you can see the trend and the multiple pin bars that formed after pull backs within that trend, on the daily chart. This is your setup that you’re looking for and looking to master.
The next chart shows a zoomed in view of the chart shown above, showing you how a 50% tweaked entry would have easily netted you ‘up to’ 6R + profit for a lower risk higher reward trade. I suggest you print out the setup you want to master first and tape it to your wall so you start drilling it into your memory!
Whether you are training to be a martial arts master like Bruce Lee or a successful trader, there are things that every successful person must do, no matter the profession. The most important thing in my opinion and the subject of today’s lesson, is practicing one thing at a time, over and over, until you have mastered it.
I have laid out the “whys” and the “hows” in this article, all you have to do is follow it. You pick a setup that you like and you learn how to trade it, inside and out, so that you are literally seeing it in your dreams. Once you do this, it will make everything else a lot easier; you won’t have to second-guess yourself as to “whether or not” there is a trade present on the charts, because you will know almost instantly. Upon mastering a trading strategy like one of the strategies that I teach in my professional price action trading course, you can put your extra time into focusing on trading psychology and money management, which are arguably more difficult to master. Yet, again, if you apply the same principles discussed today to those topics, you will end up with the same result; mastery.
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