Developing Your Forex Strategy

Everybody knows that it is important to stick to a strategy when trading forex. This post will not focus on a specific strategy, but rather give tips on how to adopt your strategy.

Guest Post by Yohay Elam of Forex Crunch – Forex Trading Blog

1. Simple Strategy: Your trading strategy shouldn’t be too complicated. A complicated strategy will take too much energy to understand, adopt and especially analyze. Today’s software enables lots of sophisticated mathematical tools. I’m not saying that you should avoid these tools. A triangular moving average may be the best indicator for you. Just don’t throw it into the pot with 10 other calculations.

2. Research: After adopting a strategy, start checking it. The market’s moves tend to repeat themselves. You can do a quick research on historical data and get a first idea if you’re in the right direction or not. You can place your tools and immediately see the results – everything was in the past.

3. Testing: Now that you have an idea, start checking the strategy on the current market conditions. The best way to test a strategy is by using a forex demo account. This will allow you to test things in a calm manner, without risking real money.

4. Documenting: The most important part of this stage is the lessons you learn. It’s very important to document your tests. Don’t rely only on your notions. While getting a feel of some strategy is important, you should back up your conclusions with written results that you can refer to.

5. Tweaking: After testing and documenting a strategy, you may be pleased with it, but think that it needs small modifications. Maybe it will work better with 8 hour charts rather than 4 hour charts? Maybe the RSI period needs to be shorter? Maybe your strategy will work better for one of the crosses rather than for a major pair. These small tweaks might make a difference in the long term – making the strategy profitable.

After your’e pleased with your strategy, it’s time for real trading. If you indeed have a winning strategy, stick with it. I’m sure you’ve heard that before. If not, go back to the drawing board until you find your winning horse.