Looking to get or create a profitable forex trading strategy? The “secret” is to choose one that helps you have an edge in the market and you are comfortable to use it.
This are the approach that will help you choose a profitable Trading strategy that will help you make money on a consistent basis and give you a well desired edge in the market:
-Trading style
-Risk to Reward
-Risk Management
-Win rate
Step #1: Trading Style
As you know there different trading style in trading. Depending on your personality you can choose a trading style that suit you. You can be Day trader, Swing trader, Scalper and a Position trader.
Having know that you need to select a strategy depending on your trading style. You cannot use a swing traders strategy to day trader or a scalpers strategy to position trade. What to look into:
Day trader - A day trader tends to open and hold positions for a day the maximum. As a day trader you can create a trading strategy based on the 4H, 1H and M15 timeframes as that what you will be using mostly.
Swing trader - A swing trader tends to open and hold positions for two days to a week. So in choosing a swing trading strategy I would urge you to select a strategy that gives you trading signals from the higher timeframes i.e Daily, 4 Hour and 1 Hour.
Scalper - A scalper tends to trade for short durations of time. Scalpers tend to enter and exit trades fast and use the 1 minute, 5 Minute and 15 minute timeframe. Having this in mind as a scalper you should choose a trading strategy that give you fast and multiple trading signals based on the timeframes stated above.
Position trader - A position trader tends to hold trades for weeks , months to even years. Knowing this a position trader should select a trading strategy that provides signals based on the Daily, Weekly, Monthly timeframes.
Step #2. Win Rate
One myth in the forex market and investment is that you will never loose money in trading or investment. I want to make it clear, losses are part of the game. How we curb with trading loses is using a good forex trading strategy. Before you consider to settle on a winning trading strategy check it’s win rate. Win rate is the amount of profitable forex trading signals it provides. Now you might be wondering but how to do i know a strategies win rate?
Well to find a strategies win rate you will take the amount of profitable forex trades divided by the overall forex trading signals provided by the strategy multiplied by 100. So if the forex signals provided are 10 and the profitable trades are 7 then the win rate of that system will be 70%.
Step #3. Risk To Reward Ratio
Next step, look at its risk to reward ratio. You might be wondering what is Risk to reward ratio. Well this is the amount of risk you are willing to take inorder to gain a certain amount of reward.
Let me give you are example lets say am using a 1:3 risk to reward ratio that means for every one dollar am willing to loose I stand to make 3 dollars if I win a trade. So when considering a trading strategy I would urge you to look into the risk to reward ratio suitable for a strategy.
Step #4. Risk Management
When selecting a good forex strategy you should factor in risk management. This is that you dedicate a certain percentage of your forex trading balance to trade with. The industry standard for is 2% i.e for every trade you take you risk 2% of the total trading balance.
What does risk Management help with:
Protect your trading balance.
- One of the trading nightmares is blowing up your trading account. Risk Management in Forex will help you avoid blowing up your trading account and have a successful trading career.
Avoid Emotion trading.
-Trading based on emotion is one way to easily blow your trading account and destroy your trading career. Proper forex risk management can help you avoid emotional trading.
Final thoughts
In today’s world there are many trading strategies and one can be overwhelmed in finding a good trading strategy. Ensure you follow the steps outlined above to find a good trading strategy that works best for you and one that will help you make money and become a profitable trader. You can check out some of the strategies we recommend by clicking here.