Creating a Trading Strategy: How to Make Your Own Custom Forex Strategy
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An awful lot of new traders don’t stick to any one strategy. They only use their own judgment to look at the current price chart, and they’re happy when they hear the professional term “Price Action Trading” (PA). Even though it’s not the main topic of discussion right now, PA is more than just chart analysis.

However, people who already know a lot about forex trading should use extra resources to make sure they are right about what they are trading. Forex indicators are often part of one of these tools.

What are the steps to create a personalized trading strategy?

Day trading

When it comes to intraday trading, begin by choosing just one stock, currency pair, or futures contract to focus on. Make sure to only execute trades within the same day, without holding them overnight. Typically, a trader initiates and concludes 3-10 trades daily, achieving an average gain of 20-50 points.

After selecting a successful approach for one asset, you can modify it to suit various other markets, too. Typically, traders begin by focusing on the most commonly traded currency pairs, such as EURUSD or GBPUSD. If you’re looking to kickstart your career in the futures market, one option to consider is the S&P500 Emini (ES).

Swing Trading

This typically involves news trading and scalping with varying transaction durations. When trading CFDs on stocks, it is essential to consistently pinpoint the assets that hold the highest potential on a weekly basis. 

Find out which companies will release their data this week and prepare to trade on these assets. Take a close look at the chart and grasp how you can utilize a comparable occurrence for your trading endeavors down the line.

Typically, heightened instability on the stock and currency pair chart begins a couple of hours prior to the report’s release and stabilizes within the initial moments following its publication. It’s important to remember that fluctuations in prices can be highly volatile and complex to anticipate.

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After settling on your chosen asset and trading style, it’s time to monitor the market closely. Avoid relying on just one chart; instead, consider consulting multiple charts simultaneously. It is strongly advised against initiating trades during this stage of development, as you still need to have a defined strategy!

It’s essential to closely monitor how the price chart behaves across various timeframes, ranging from short-term intervals of 5 minutes to more extended periods of several months. Furthermore, selecting a trading period is a crucial component of the strategy.

Now, we will discuss the process of rationalizing a trading strategy, which involves selecting specific criteria for the algorithm that you have outlined.

Rationale for a trading strategy

Examining the charts of currency pairs or stocks involves carefully identifying opportunities and favorable moments to generate profits. Typically, they begin by analyzing significant price fluctuations using past data.

Additionally, it would be beneficial to analyze the charts of alternative timeframes and various assets (in the case of developing day trading strategies) in order to identify comparable patterns, such as market responses to similar events (such as the release of NFP news), albeit at different points in time (around a month or two ago). This will assist us in identifying a justification for the conditions of our trading approach.

By employing this approach, you can observe the trends and consequently develop a theory regarding the tactics.

Testing the strategy

Once you have a viable concept for a trading strategy supported by sound reasoning derived from historical data, you can proceed to delve into the specifics. To accomplish this, test the effectiveness of your new approach by analyzing recent fluctuations in prices.

Choose multiple currency charts, such as those involving the dollar, and examine them over various timeframes. Your objective now is to discover ten or more “trading signals,” which are moments that have shown reasonable success for initiating a trade. Keep in mind that the justification for each of them should be identical. Otherwise, it doesn’t qualify as a signal in any way.

Suppose you choose to initiate a buy trade for USDJPY whenever there is a positive Nonfarm Payrolls report and place a sell position for the pair whenever there is an unfavorable report.

Take a trip back in time to a few months ago. Simultaneously, access the Economic Calendar for past timeframes. Imagine the scenario where the Nonfarm Payroll (NFP) report exceeded expectations, and envision yourself taking advantage of this opportunity by initiating a buy transaction.

Refer back to the chart: is it possible to generate income using this method? Or did the market act irrationally, causing the price of the pair to decline? You will probably conclude that your hypothesis does not yield a profit in every single instance, and this is entirely normal.

It is crucial to evaluate the effectiveness of your trading strategy by tallying up both profitable and unprofitable trades. What kind of outcomes did you achieve within six months? Was your account ultimately profitable? Have you proposed a viable hypothesis for the trading strategy? It couldn’t be the case.

You may have reached a point where you’re lacking inspiration for an approach rooted in fundamental analysis. Then, a more reliable alternative emerges to assist – strategies that rely on signals from technical indicators.

Suppose significant economic news or company reports are not frequently published. In that case, technical indicators can be used to analyze price behavior throughout the day, enabling continuous trading even during nighttime hours.

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Nathan Boardman

By Nathan Boardman

Nathan Boardman, acclaimed Forex trader and author, specializes in market analysis, strategy development, and risk management. His insightful articles, published in Forex Profiles, empower readers to navigate the currency market successfully.

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