There is no one size fits all strategy in Forex. This means that for traders who are just entering the market it can feel like quite a daunting task to narrow down a method of trading and analysis that would be best for them.
To help new traders find the best strategy, we are going over some tips and tricks.
It is hard for someone else to give you a complete breakdown of a method of trading that will be best for you. Unfortunately, this is something that you will have to figure out on your own. What we can do is simplify the process for you.
If you are just entering the market and wondering about your options and how to test them, this article is for you.
You’ve heard about starting small, we just you also keep it simple.
When you’re just starting out there is no need to complicate things unnecessarily. Start with some key indicators that you think will suit you. You can read our blog on the most useful indicators to trade with to find the best ones.
Decide on a position size that works for you and use that for most trades. This could be a smaller lot, in fact it probably should be a smaller one.
Backtesting Your Strategy
It is hard to tell if something will work for you until you have taken it out for a run. The way to do that with a strategy is to test it on historical market data. That is essentially what backtesting is.
Apply that strategy on historical data and see what results you’re getting. It is recommended to backtest as much as you can so that you know that it works in all conditions.
The market reacts to data and news differently. Those different reactions can be seen taking place in the past. You just need to apply your strategy to those instances to make sure that if a similar situation arises in the future you’ll be fine.
Keeping Realistic Expectations
It is important to remember that no strategy can offer 100% success rate.
The next best thing then is: knowing how much is good enough.
Most successful traders have a success rate of 55% to 60%. So if after backtesting your strategy, you get these results that means it is a strong contender. You may consider using it in your trading.
If you’re getting results below 50% then that strategy might not be the one.
Being Aware of Your Trading Temperament
All traders have their own set of strengths and weaknesses. The best thing any trader can do is being honest about what theirs are.
Conduct a self-analysis and see what you’re good at and what you struggle with when it comes to trading.
You can take a look at psychological factors in trading listed in this blog to get a better understanding of the subject.
Use this information to self-analyze and think about what might prove to be a challenge when implementing your chosen strategy.
This is as good a starting point as any. If you have done your research, formed a strategy and backtested it, then it might be a good time to start your trading career.
If you’re still unsure, keep looking. Educate yourself on strategies and trading challenges as much as you can before stepping into it. In addition to backtesting, you can also apply strategies to trades through a demo account.