In this article, we will discuss on how to create your own profitable trading strategy. There is a huge number of trading systems and strategies. Some are paid, many are free, some are complex and other are simple. Of course, you know that a trading strategy should ideally suit the trader in a psychological way. However, the best strategy is a strategy created by the trader himself.
Creating a profitable trading strategy
When creating a profitable trading strategy, we would like to do several things:
- Find the optimal entry points to the market
- Find the optimal exit points from the market
- Minimize false signals
If it turns out to achieve the set goals, then we will have a nice sweet profit.
Where do I start?
Choose the time inverval
The first thing you need to do is to decide how much time you are willing to spend on trading a day? You prefer to sit on your computer for many hours per day trading short time intervals (5, 15 or 30 minutes). That is because you need to constantly monitor the market and react quickly to all changes? Or you are more comfortable checking the charts a couple of times daily?
The choice of time interval depends on your time, which you have and which you are willing to spend on trading in the Forex market.
On the other hand, during the test of your new strategy, you can pay attention that at some intervals the strategy works better, and on some worse.
Select trading tools
The amount of tools to choose from when it comes to forex trading is enormous. However, timely signals about trading opportunities are not provided by all. The trader’s goal is, of course, to enter into a profitable deal, as fast as he can in order to get the maximum profit from the price movement.
Among the indicators that can give a signal to the trader about the upcoming changes, we can distinguish such as: EMA (Exponential Moving Average), SMA (Simple Moving Average), Parabolic SAR, Stochastic, MACD and others. The main point here is that you need to understand the principle of the indicator very well in order to get the most out of its use.
One way to determine the reversal or change of trend is to use the moving average indicator.
For instance, you can use 5 EMA and 10 EMA, their usage will give a signal about the reversal of the trend at an early time. Another example is the intersection of the lines of the Stochastic indicator or lines of the MACD indicator. The idea is simple, when two lines cross each other, the trend changes. Then, new opportunities appear for entering a trade.
The indicators Stochastic and MACD are also based on moving averages. They can be used for creating profitable entry points in the forex market.
Related: Avoidable Mistakes Forex Traders Do
The choice of an fx pair and the analysis of the peak of its trading activity
Currency pairs behave differently from one another. Some are very active, for example, GBP / USD , some, on the contrary, are constant, for example, such as are EUR / JPY or EUR / GBP. Specific settings of the indicator and different values can help to achieve maximum profitability of your chosen pairs.
In addition, it will be useful if you know when the currency pair you have chosen is the most popular. The hours of activity of a currency pair can be determined quite simply by the schedule. These hours should be used by the trader in their advantage to maximize their ROI.
Selection of additional tools to make sure the signal received earlier are right
After you have decided on what time interval you will trade and what indicators work best in this time interval, the next step is one of the most important ones: to find additional tools to confirm the received signal to enter the transaction. This will help you to avoid false signals.
As a confirmatory factor, a trader can also use any other indicator that he likes. We recommend to approach carefully the choice of an additional instrument, which will confirm the first signal.
For instance, we have previously considered the method of using moving averages such as 5EMA and 10EMA, so in addition you can use 20EMA and hold your position until 5EMA crosses 10EMA and then crosses 20EMA, which will be the second and final confirmation to enter the transaction.
Other reliable indicators that can back up the original signal can be Fibonacci, Stochastic and so on. Improvise and you will be able to find a combination that will give the best chances of succeeding.