Want to implement a good Forex Strategy?
Want to implement a good Forex Strategy?
Want to implement a good Forex Strategy?
You can ask most traders and they will tell you about some moving average or a combination of indicators or a chart pattern that they use. This, as the more experienced trader knows, one input and not a strategy.
Any operator who is more experienced will say a strategy should also include money management, risk management, perhaps stop losses and of course an end. They also say you should let your profits run and cutting your losses short.A well-read trader will also tell you that your strategy should fit with your trading personality.
There is another important factor that many companies forget - and it is to fully understand the "personality" of what you trade. Some companies specialize in say, gold or Brent crude or currencies or they may specialize in a particular index, such as the FTSE 100 or Dow but many companies choose to trade in shares. Indeed some traders dabble in a bit of everything. I think it is the area that causes many companies to fail or at least not reach their full potential.
In my opinion: You absolutely must specialize.
I'm sure that on the surface most people would say it sounds reasonable, but here's why it's a must!
Many charts look the same. I bet if you had not seen the charts for a while and no where to show you a chart of Brent Crude over 6 months and then a chart of Barclays Plc over the same 6 months, you would be hard-pressed to say that there were clean look of the chart.
I would bet that if you found a trader who trades ONLY Barclays day in and day out, and found a person who trades ONLY Brent Crude day in and day out, both of them would easily identify which was which. WHY?
Because each share, index or commodity has its own "personality".
Some will be volatile intra-day, some will follow their sector or the main index (market followers), some will do their own thing, some will spike up and down regularly, some will stop at key moving averages and some will just plow through. Some will move by 5% on average, before the track and some with 2%. Some will gap up or down frequently, some will not. You get the idea!
No matter how good you are analyzing indicators, moving averages, trends and patterns, the same strategy does not work for everything. I would go so far as to say that a strategy that works well for Bovis Homes, for example, is unlikely to work for BT Group - they have very different "personalities".
Let us return to our question: What makes a good trading strategy? Let me respond with a series of ten questions that you need to find answers to build a really good strategy.
1. What do you want to trade (stock, index, commodity, currency, etc.)? If your answer is shares (majority) I would urge you to take a typical stock at this time to really specialize. You can add more later.
2.What "personality", making the share, index, etc. are?
3.What entry system is the most reliable for this stock?
4. Which stop-loss system is the most effective for that share?
5.What average risk, a typical commercial carrier?
6.What exit system works well for that share?
7.What is your trading personality (attitude to risk, losses, discipline, how much can you worry, etc.) and you can trade the strategy without overriding it?
8.What horizon Want to trade? (Use of intra-day or end of day data)
9.How much data you keep on past trades to help identify weaknesses strategy?
10.How does all this fit with your trading goals?
Anytime you have an answer to every question you have to do one last thing. Make sure that all these things fit together and complement each other. For example, if the ideal stop-loss position represents a large average risk and conflicts with your own attitude to risk, you must start again. If you want to put your exit point because greed makes you hang out more, please think again.Maybe you shouldn't trade that stock in the first place - look for one with a different "personality" that will lead to a strategy you can shop comfortably.
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