Introduction to Forex Trading Strategies
The concept of forex trading strategies is one of the knotty topics in the forex market. Institutional traders really do not have problems with forex trading strategies because they have developed their own trading algorithms over the years which work for them perfectly. For them, these forex trading strategies are the keys to the billions of profits that they churn out annually, and they usually keep their strategies a well guarded secret.
The problems with strategies are all on the retail end of the market, which is filled with inexperienced traders with very little professional training, if any. The question for any retail trader is where to get a forex trading strategy that actually works. Many con artists have capitalized on the naivety of retail forex traders to sell all sorts of stuff to them in the name of the perfect strategy. Sadly, many retail forex traders get sucked in by the glamorously designed and sweetly-worded web pages that fill the pages of cyberspace. Search for the item “forex trading strategies” in the search engines and see all the stuff that comes up. The end result is that the trader ends up with something that does not work, or just gets outrightly confused.
Let us dispel some unfounded claims here in this article. Firstly, there is absolutely nothing like a perfect forex trading strategy. Nothing in this world works perfectly. Even a major institutional trader sustained some hefty losses from one of their time-tested strategies as a result of some carelessness in setting positions by a trader who was not authorized to handle such trade sizes. So if one of the big guns could fall a victim, what would become of an inexperienced retail trader?
Secondly, if you come across a webpage that claims to have a strategy that can turn “$500 into $36,000 in three months”, please run away from such as site and others like it. Do not even believe some of the testimonials on those sites. Testimonials can be faked. I never believed that this was the case until I stumbled on a freelance job site where someone posted a job asking for graphics and multimedia experts who could craft convincing testimonials for a forex site!
How to Prepare your Forex Trading Strategies
Now that you know what a forex trading strategy is not, we will now tell you what a good forex trading strategy should embody.
1) A good forex trading strategy is one that can deliver profits consistently over time. This means that a good forex strategy is NOT one that never makes a loss, but one that delivers much more profits than losses OVER a period of time. If you have a forex trading strategy that can deliver 30 wins and 20 losses in 6 months, and you have a net return of 50%, you actually have a good strategy. If you have one that delivers 50 wins and 15 losses, but your return over 6 months is only 10%, then obviously this strategy is not as good as the first one even though it posted a higher winning ratio.
2) A good forex trading strategy must have a solid risk management system. As we can see from (1) above, the overall profitability of a forex trading strategy depends to a large extent on risk management. If a strategy has a high win ratio but poor percentage returns, then there is a problem with the risk management strategy of that system even though the strategy helps the trader make good trade calls.
3) A forex trading strategy must be able to withstand the vagaries of the market and its dynamics to the extent that it retains its profitability despite changes in the behavior of currencies. For instance, there are some currency pairs which were typically range bound about 2 to 3 years back, but which have suddenly assumed trending status. One of such currency pairs is the EURGBP currency pair.
So with these in mind, how can a trader get hold of a solid trading strategy that will fulfill these conditions over and over again?
It is possible to purchase a strategy over the internet, but the problem with this method is that it is difficult to assess the strategy’s performance before purchase. A much better method, but which will take the trader through a longer road to success, is to sit down on the computer and start trying out indicators and methods of analysis. The learning curve can be reduced if the trader stays on this site and reviews some of the material on this subject matter, or go to www.forexaccounts.net to see what is on that site.