2 Points Worth Considering When Trying To Create A Profitable Forex Strategy

Trying to come up with a profitable trading strategy is a challenge that faces every single forex trader

. Most will ultimately fail to achieve this goal, but some will inevitably be successful. So how can you come up with a winning strategy?

Well you first of all have to decide which kind of strategy you are looking for. There are two that are generally regarded as being the most profitable.

The first type of strategy is one which uses the same stop loss and target price. In other words it may employ a 20, 50 or 100 point stop loss and target price, for example. The objective of this type of system is obviously to generate more winning trades than losing ones, so a success rate of 51% or more will be enough to generate some decent long-term profits.

This is quite an easy target to achieve if you play around with a few technical indicators because by doing so you can put the odds firmly in your favour. Plus if you start trading off key support and resistance levels, you stand an even greater chance of achieving a success rate of more than 50%.

The second type of strategy I recommend is one which keeps losses relatively small, but targets much greater gains from each trade. So for example you may decide to use a stop loss of 10 points per trade, but target gains of 50 points, for instance.

The major benefit of this type of system is that you don't need a very high success rate in order to generate some decent profits. To demonstrate this point with the example I've just given, with this system you would make money even with a success rate of just 20%. If you had two winning trades out of ten, you would have eight losing trades, which equates to an 80 point loss, but you would have two winning trades totalling 100 points, giving you an overall profit of 20 points.

So the point I want to make in this article is that you don't need to spend hours and hours testing out different systems in order to try and find one which seemingly never loses, because this is practically impossible to do. You're much better off trying to come up with a simple system that requires just a 51% success rate (or higher) using the same stop loss and target price, or one which uses tight stop losses and targets greater gains per trade, which obviously requires a much lower success rate. Both of these strategies have their benefits, and they are both employed by many successful forex traders.

by: James Woolley

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