|What is a good strategy in forex?|
If you want to become a successful forex trader, you must be able to distinguish between good and bad trading strategies. While the best way to evaluate a trading strategy is to measure the amount of profit and loss in that strategy, there are other ways to evaluate their performance.
Personalized trading strategy
Trading strategy should be personal, because the forex market is very volatile and sentimental. Many traders use high-risk trading strategies, which may not be suitable for everyone. For this reason, if you want to copy someone else's strategy, you should evaluate it and include risk management criteria in it. Only after carefully examining a trading strategy can you tell the difference between a good strategy and a bad one.
Always be honest with yourself. If you do not agree with the trade that the trading strategy imposes on you and you do not feel confident, then this trading strategy is not suitable for you. Subsequently, getting the desired result from such a strategy is far from expected. Therefore, to succeed in the foreign exchange market, you must choose a trading strategy that is not difficult for you to follow.
Expectancy can be an effective factor in evaluating trading strategies in Forex. Successful traders know what to expect from a trading strategy. The amount of expectancy can be calculated according to the output of a strategy in forex. If the obtained number is negative, the strategy in question is a useless strategy, but if the obtained number is positive, then this strategy can be profitable in the market. Expectancy is obtained from the following relationship:
(Average amount of profit × % of winning trades) – (Average amount of loss × % of losing trades)
In this way, you can set your expectations for a trading strategy that you use. In fact, it doesn't matter how many winning trades and losing trades you have during the day, but the outcome of your trades determines whether this strategy is good or bad. For example, there are traders who succeed in making a profit from their forex trades only 15% of the time, but the amount of profit they make in these trades is more than the amount of losses. Now the main question is whether you can stick to such a trading strategy or not? Most traders cannot do this. So, think well before you start.
What influences the performance of a strategy
Some strategies are highly dependent on some factors and inputs. For example, there is a trading strategy called "London Dawn Strategy", which depends on the activity of European and British traders. Because a major volume of liquidity enters the market when the trading day begins in Europe. Therefore, it is natural that this volume of liquidity causes the forex market to move in a certain direction. Obviously, if you want to use this strategy, you have to make your trades at a certain time. Otherwise, this strategy will not be profitable for you. Fortunately, there are many kinds of these trading strategies, and you can choose the one that fits your trading plan perfectly.
The effect of volatility on trading strategy
One of the factors that you should always consider is that the forex market is constantly fluctuating and changing. Sometimes, the market is affected by waves of trader sentiment, and sometimes the market trend changes completely. Many long-term traders are resistant to changing their strategy. But the fact is that sometimes you need to change your trading strategy according to market conditions. Therefore, you should always evaluate your trading strategy and improve it. One of the differences between a good strategy and a bad strategy is that a good strategy adapts itself to market changes, while a bad strategy does not.
For example, the market may be quiet for a few days. You have to find a way to continue trading in these conditions. It is clear that in this situation, looking at the long-term trend cannot be useful. For this reason, traders should have several different strategies in order to use the appropriate strategy in any situation. For example, a trader who usually uses the stochastic oscillator indicator to perform technical analysis will get better results from his trades when the market is in a stable condition than when the market is trending. On the other hand, if a trading strategy works based on the use of the Bollinger bands indicator, it will perform better in volatile conditions. By knowing under what conditions each trading strategy will have the most favorable results, you can change your strategy according to market changes. Simply put, even the best trading strategies are not profitable in all situations. Therefore, it is better to choose some good strategies so that you can take advantage of each one in the right situation.
Trading strategies are like tools. In other words, a successful trader must know when to use which trading strategy to maximize profitability. It is also worth noting that no trading strategy is good in all situations. Therefore, a good strategy and a bad strategy in trading also depend on how traders use them. Traders never get the same results from the same strategy. A trading strategy can be good or bad, and it depends entirely on how it is used.
Another thing you should keep in mind when entering the forex market is to choose the best forex broker which matches your needs. Aron Groups Broker now provides financial services to more than a million clients over the world. By joining this broker you can trade in forex, energy, indexes, stock market etc.
Written by: Mohsen Mohseni (Aron Groups).