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Published On: Sat, Oct 24th, 2015

How to find a good FX strategy?

After familiarizing yourself with the basics, you began to look for the “holy grail” of trading. Most traders went through this phase. You were looking for the strategy that is mechanical enough that the entry and exit points are easy to define and has no, or only a few losing trades. The good news is that this strategy does exist. The bad news, that you cannot have it.

Unfortunately the internet is filled to the brim with various currency trading strategies and their success reports. Some even go the extra mile and create sophisticated and complicated automated algorithms to do the trading on behalf of them. But none of these will work by themselves. The reason for that is that trading successfully is more about the right mindset and psychology than it is about the winning strategy.

Take a trader you know, and try to copy their strategy. Even if you know all entry and exit points, who is to guarantee that you will stick to his plan? If the position makes an interim low and has a floating loss, will you be able to distance yourself from the action and stick to the plan? Many traders won’t, exit the trade prematurely, and lock in their losses. This is not limited to losing trades of course. If a position gains in value and you exit prematurely, then you have essentially forgone the chance to let your profits run.

photo/ Public domain pictures via Pixabay

photo/ Public domain pictures via Pixabay

What does it take to be successful in trading?

A good strategy is a key part of it obviously. To consider a strategy a good one it has to have well definable entry and exit points, with no “gut feelings” involved. The risk reward ratio has to be something reasonable but at the same time it must not limit the amount of potential setups too much. If the strategy would only find an entry every 3 months, and you miss it because you can’t sit in front of your computer every day, then it is no good for you.

A good strategy has to fit your life and trading style. If you decide to trade on a smaller time frame, like the 5 minute or 15 minute chart, then you will most likely find opportunities to enter into a position and exit within a relatively short timeframe. This is suitable for people who do not want to scan the charts all day long, but when they do, they want to find good opportunities. Trading this way might also limit the overnight exposure.

If you think you find more luck in reading the underlying market sentiment, or trend, then you can consider adjusting your strategy towards swing trading. This will equal in more long-term positions, ranging from a couple of days to a few weeks. Before going this route you have to make sure that your position is adequately sized, as you might have to take a bit of a beating before your plan comes to fruition.

Regardless of the timeframe used, the key point is to stick to your plan. Being worried about a position is the first symptom that your position is too large. It should not bother you at all whether you win or lose money on a trade, your main consideration should be whether you are able to adhere to your own guidelines and that your perception of the market is right or wrong. Sometimes it can also help to simply hide the account balance and P&L of a position to distance yourself from the emotional impact of a trade. If you can consistently find good setups, and limit the risk you take, then currency trading is a surefire way to a world of wealth and riches.

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About the Author

- Adam Lee is a financial writer who has insightful knowledge in dealing with different financial issues. He tries to help people to get out of difficult financial situations by contributing financial write ups to websites and blogs such as Moneyforlunch.com and Moneynewsnow.com

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