How to Create Your Own Profitable Forex Trading Strategy 

 September 6, 2016

By  Advanced Strategies

Creating a Forex strategy isn’t difficult, however, it requires time to test it in detail to see the results. This is the reason why traders are advised to stay patient, because having a good strategy can actually multiply the overall trading returns in the long run. In this blog post, we will show you How to Create Your Own Profitable Forex Trading Strategy. It’s actually simpler that you think but you do have to be organized.

Decide Your Time Frame

Profitable Forex Trading Strategy - Select Your Preferred Time Frame
Profitable Forex Trading Strategy – Select Your Preferred Time Frame

In order to build any strategy, you must decide the type of trader you are. For example, you must identify if you are a swing trader or a day trader; if you look at the charts on a daily, weekly or a monthly basis; and how long do you keep the position open. These factors are useful in defining the time frame you should use while trading in the market. Although, you might go for multiple time frames, yet, this particular time frame will be the one you would use when you look for a trade signal.

Identify New Trends – Is the Market Bullish or Bearish?

Profitable Forex Trading Strategy - Identify the Trend
Profitable Forex Trading Strategy – Identify the Trend

One of the objectives of a trader is to find trends as quickly as possible, and to achieve this, he should use indicators. An example of a popular indicator is the Moving Average Indicator which is used to find identify trends fast and easy. There is a moving average crossover system as well, wherein, a fast moving average crosses under or over the slow moving average. It is the fastest tool to determine the trends, and also the easiest way to observe new trends.

Confirm the Trend

Once you have identify the trend, bullish or bearish, then it’s time to confirm if the trend is strong enough. We do not want to get into position only to find out that it’s a whipsaw market. Multiple small losses can add up fast and do plenty on damage on any trading portfolio. So it’s wise to always confirm a new trend with other indicators, such as, Stochastic, MACD, or RSI. Once a trader learns to use different indicators, he can choose a particular indicator over others and can make it a part of his strategy.

Creating Your Own Risk Management Rules

Profitable Forex Trading Strategy - Creating Your Risk Management Rules
Profitable Forex Trading Strategy – Creating Your Risk Management Rules

While creating your own profitable Forex Trading Strategy, it is important to define a risk level you are willing to take. You should already know how much you are willing to risk in each trade. However, in a real scenario, a good trading approach is to think about how much you are willing to lose before thinking about profits. It is all about money management, which plays a vital part in defining the risk level. So take some time to define your risk management goals and rules. For example, in one of our Porftolio Profit By Friday EURUSD, we have a simple rule of having a stop loss of 20 pips for every trade. And our account sizing is 0.01 per $100. So if our account is $10,000, then we will risk 1.0 Lot with a strict stop loss of 20 pips for every trade. You can of course device more complicated exit rules and risk management rules… you are the boss. It’s all up to you but be comfortable with it.

Entry and Exits

After setting a risk level, you should identify different entry and exit points for maximum profit. Some traders prefer to enter a trade as soon as their indicator generate a buy/sell signal. Some traders might wait for the session to close. Some trades might jump in during the session. There are some traders who believe that the best way to make profits is to wait until the close of the candle before entering. So, it is all about the trading style. Some traders follow a more aggressive approach than others.

For an exit strategy, one can use a number of options, for example, you can trail a stop by moving the stop with the same proportion as the price moves, or you can set target and exit when the price reaches the target. Computing a target is entirely up to the trader. Usually, support and resistance levels are used as a target. However, some traders choose the same amount of pips on a trade. The key is to stick with the target and not take an exit before time.

Follow the Your Trading Rules Strictly

These are the simple steps to creating your own profitable Forex Trading Strategy. Once you have identified the trend, confirm the trend, and determine your entry and exit rules, it’s time to stick to plan. What’s the point of having a set of rules but not follow it. Everything has to be systematic because you want to have a stringent process that you can follow over and over again to have duplicate the same results. What’s the point of making profitable trades but you do not know how to replicate the success. This is key… replication of successful trades. Hence, you want to have a set of rules that can help you gain consistent results over and over. In fact, these set of rules should make you rather mechanical.

Final Step to Your Own Profitable Forex Trading Strategy

The quickest way to test a strategy is to get a charting software where you can go in the back date and also move the chart forward. Moving a chart forward one candle at a time allows a trader to follow his trading rules and place the trades accordingly. Record all the transactions and analyze them before moving on to the live demo account. It is advisable to trade on a demo account for a period of at least 2 months. This gives a fair idea as to whether your strategy is worth standing its ground in the market. Securing good results mean you are ready to trade in the real account.

However, using past data, of course, does not guarantee performance. This is the reason why a number of traders do not go for back testing, meaning they do not apply the strategy on a past data. Instead, they go for impulsive trading as a result of low due diligence. It is crucial to be aware of the success rate of a strategy, because a failed strategy never works anyway. Therefore, a trader should scan over the charts and apply new methods on the data they have of a specific time frame.


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