How to Find and Employ Your Own Trading Strategy
Trading may seem daunting, especially for a new trader. After all, there are so many strategies, technical indicators, expert advisors, and so on to choose from. Of course, plenty of guides, courses, and videos exist that can help an aspiring trader to learn both basics and intricacies of the Forex market. But their sheer amount can be overwhelming by itself. Yes, you have an the option to copy other successful traders. But to grow as a professional Forex trader and to fully exploit the potential of the Forex market, you need to find and employ your own trading strategy. Not to mention, even the best traders have periods of losses. They may survive those periods, but you might not. This article explains the fundamental approach you need to have to successfully employ your own strategy successfully.
Experienced traders list several things you need to understand before you start trading. Among them are:
- Trading can be easier than it seems. When you start to learn about different trading strategies and methods, you will see that trading is not rocket science. The vast majority of techniques can be very straightforward and easy to understand. And you do not need a university degree to understand them.
- Finding a good trading strategy is not enough. In fact, some experts argue that most trading strategies and methods can be considered good (or at least workable) to some degree. The main challenge for you as a trader is to know where, when, and how to employ a good strategy.
- Trading is often hard. Despite what was earlier said about trading being easy, the vast majority of retail Forex traders fail. Depending on whom you ask, the ratio can be anywhere from 90% to as much as 99.9%. But why is it so if trading is supposed to be easy? And that is the next and, perhaps, the most important point you need to understand.
- In the vast majority of cases, the reason for the failure of a trader is the trader themselves. It is no secret that psychology plays a vital role in your success as a trader. And your failures as well. It can be a lack of discipline. Or maybe the trading approach you have chosen does not line up with your psychological profile. In any case, you need the right state of mind to find your footing as a profitable Forex trader.
One of the biggest problems for you as an aspiring trader is that nobody can teach you a strategy that will be good for you specifically. But why is it so? You see, many professional market participants think that trading is more an art than a science. Often in trading, you need to employ your personal judgment, making the process subjective, not objective. And this skill is impossible to pass through theoretical teaching. Yes, you can try to watch how more experienced traders participate in the market. But that will be of limited use if you do not understand why they are doing what they are doing. And the answer "because of gut feeling" will probably not help you much. You need time and experience to develop your own gut feeling. Well, you can avoid all that hassle by using robots. But algorithmic trading is its own can of worms that is better to be discussed separately. To properly use them, you still need to learn how to trade anyway. Thus, your own future should ultimately be only in your own hands.
But where should you start? Sit, carefully consider your current situation as well as your plans for your trading career, and write down the basic points. Who are you? Whom do you want to be? What are your strengths? What are your weaknesses? What is an ideal day as a professional trader in your mind? What is your current life situation? What are your goals in life in general and the trader career in particular? Understanding where you are and where you want to be can help your motivation and help you understand how to get there. And then, focus on your goal and start moving towards it.
Next, follow three simple steps:
- Find a strategy that looks good for you.
- Validate it by backtesting vigorously.
- Employ the strategy after validation.
Remember: there is no ideal strategy, there are always tradeoffs. When you are choosing a trading strategy, keep in mind your idea of how a day as a professional trader should look like. Do you want to trade just a few hours a day to have time for other things? It is possible. You can be a swing or a position trader. But that means you can miss plenty of good trading opportunities when you are away from your PC. Or do you want to be catching even the smallest chance for a profit? You can do that. That is what scalpers do. But that means you will be glued to the monitor for many hours on end. Consider various options, their advantages and disadvantages, and then choose what is best for you personally.
If a strategy does not provide the results you want, that does not mean you should drop the strategy immediately. Try first to adjust and finetune it. Testing and finetuning can be boring and tedious, but it is required to find a good strategy and get the best results from it. But you should also remember that backtesting and live trading is not the same thing. You might be surprised how different trading with real money versus trading with virtual money can be, even though you are seemingly doing the same things.
A good trading method generally considers the following points:
- Market conditions.
- Points where you will want to enter a position.
- Validation — how the market should look before you enter a position.
- Maintenance — how the market should look after you enter a position.
- Profit objectives.
- Risk management.
Once you have found and tested a profitable strategy, stick to it. Do not switch to another strategy just because it led to losses in a few trades. Even the best traders with the best strategies experience periods of unsuccessful trading. Those periods can last a few days, several weeks, months, or even years. That does not mean you should keep experiencing losses when you see that the strategy you are using does not align with your preferred trading style. Suppose the chosen trading techniques do not bring anything but losses to you. In that case, you should probably start looking for a new trading method.
You may hear about some rules in trading. And here to mind comes the line from the Pirates of the Caribbean movie: The code is more what you'd call "guidelines" than actual rules. It can be useful to know what rules other traders frequently use in their trading, but that does not mean the rules should apply to you exactly the same way. For example, you may hear that you need to risk only X% of capital in your trading account on any given trade. And it is not a bad rule in general. But you may be comfortable with risking a slightly higher percentage of your funds. Or, on the contrary, you want to be safer and risk a smaller portion of your account when opening a position. Ultimately, it is up to you to find out what the ideal rules for your trading style are.
- Only you can develop your strategy that will align with your goals and trading style.
- If you find a strategy that works for you, stick to it. If it starts to result in losses, it is better to adjust the existing strategy than to try to find a new one.
- Do not let the failure rate in the Forex market discourage you. Do not allow the seemingly complex methods, techniques, and trading rules to daunt you. Test, adjust, and employ your preferred strategy.
- It will be easier to learn trading, gain experience, and employ your trading knowledge if you have found a strategy that suits you personally.