How to build your own trading strategy

How to build your own trading strategy

Many people believe that markets are random, so they prefer to trade on a hunch entirely relying on their gut feelings. They might be right. Sometimes it is possible to scoop a big profit moon walking down the Wall Street, but this approach is not free from risk.  Experienced traders rely on the thoroughly elaborated trading strategies. They know that although there might be some deviation in market prices, quotes do follow certain patterns. So, if there is a grain of rationality in the market's movements, it’s better to have a formulaic approach to forecasting them. That’s why we encourage you to build your own trading strategy.

Most trading strategies include two basic elements: setup and trigger.

The setup is a favorable market condition, a rather significant but not sufficient for the opening of the position. The setup may consist of one or more filters.  It may be a particular location of candlesticks or indicators that you apply to the technical chart.

Filters are designed to protect traders from receiving false trading signals. However, be moderate in plotting them to your trading desk. If you apply too many filters, you risk missing trading signals at all.

The second important element is the trigger. It is a technical signal that indicates the right moment for entering the market.

Once you define the setup and triggers you should:

  1. Ask yourself who you are: scalper, day trader, medium-term trader or long-term trader.
  2. Choose a timeframe – monthly, weekly, daily, hourly, etc.
  3. Evaluate the size of your financial assets (because every strategy demands a different amount of money).
  4. Define how much you would like to get from a certain deal (you should calculate potential profit from a particular deal and choose the time when you will have to close your position).
  5. Be ready for initial financial losses (it’s almost impossible to build a profitable strategy with no sacrifices). Off course, you may master your techniques on demo-account. But sooner or later you will have to play in the real Forex market.
  6. Decide which market condition you will focus on. As you know, there three primary conditions: trend, range, and breakout. Each of these conditions exhibits its own market tone, so, you should decide in which sort of market conditions you’re more successful.

In this article, we defined primary steps that you should take to build your own strategy. In the next articles, we will deliver some profitable strategies introduced by financial gurus. 



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