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How to develop a forex trading strategy the right way

Updated: Aug 16

A forex trading strategy is the basis of your trading career. Without a Forex trading strategy you are nowhere. Although a strategy is not everything, it’s an important part and should be taken seriously. There are a lot of different ways to approach the market. In this article you will find out how to make a forex trading strategy the right way. If you are interested in a mechanical forex trading strategy, you might want to check out the services we provide.


Why do you need a forex trading strategy?


There are a million ways, possibly even more, to trade the markets. There are also a million ways to lose money in the markets. The market is a free place. You decide when you buy and sell, you decide how long you hold a position, you decide how much you risk. It’s good to have a lot of freedom but it has it’s downsides. Because there is so much freedom you can make a lot of mistakes and try to do everything at once. A forex trading strategy helps you to stay organized in the markets and only lets you trade when the odds are in your favor.


What to look out for when getting a forex trading strategy?


When you are working on your forex trading strategy, it’s important to keep a few things in mind. Without these things you are basically going to waste a lot of time on meaningless things. Take notes now. The most important things to focus on when building a forex trading strategy are:


· Edge

· Knowing your edge

· Your lifestyle

· Your personality


When you are going to develop your own forex trading strategy these are the most important things you need to think about. Notice we say develop. Everyone is different and everyone trades a different way. Yes, you can learn a strategy from someone but you will always do it slightly different to match your personality. No one is the same, so no strategy fits everyone.


It starts with edge. A strategy without an edge is just the same as doing random stuff and hoping to win. You need a proven edge to win, it’s that simple. An edge means that over the long run you make money, just like casinos do. You need to become the casino, not the guy who goes to the casino to lose his money. There are a lot of different ways to gain an edge in the market. The most important thing is to find an edge that fits your personality and an edge that is proven. You can prove your edge by testing it over years of data.


Knowing your edge is what comes next. Knowing your edge means you understand exactly why it works, so the concepts behind it. You know why it makes sense, you know when it works, you know when it doesn’t etc. If you don’t know these things, start here. You really need to figure those things out. Why? Because it gives you confidence to trade your edge. You need this confidence to get through losing periods. You also need to know your edge to allocate risk in an efficient way. Enough reasons to get to know your edge right?


The next thing when it comes to developing your forex trading strategy is to look at your lifestyle. When you are going to develop your forex trading edge and come up with your forex strategy, it’s important that the strategy fits with your lifestyle. In the beginning you won’t be able to make an income from trading. In fact, it takes around 5 years to make decent money from trading, on average. This means that during the first 5 years, you still need to keep your job. How are you going to trade during this period? What are you going to do to watch the charts? Trading must fit with your job, not the other way around.


Most people that still have a job, are better of trading the daily timeframe. This allows them to check the chart before work and after work, and gives them plenty of time to make decisions. There are other options to do this. The bottom line is: your trading edge should fit with your lifestyle.


The next important thing you need to figure out is your personality. When you are going to develop your forex trading strategy with edge, you need to know your personality. Your job as a forex trader, is to execute a profitable edge, without making mistakes. The bigger the difference between your strategy and your personality, the more mistakes you are going to make. Are you someone who thinks very black & white? Are you someone with a background in engineering? Then you are better of having a mechanical trading strategy instead of a discretionary trading strategy, because it’s way more systematic. Really try to figure out who you are and build your trading edge around this, otherwise you are doomed to fail.


Not having a trading strategy that fit’s your personality is one of the most common reasons why people fail to make money. They get a trading strategy from someone else, because it works for them. The thing is, everyone is different. You might understand the concepts, but does the trading strategy fit with your personality? If it’s not the case, you are not going to make money with it.


Stop trying to copy things that work for other people and expect you are going to get the same results. Yes, the best way to learn trading is to learn from someone that has mastered forex trading, but that’s where it ends. You need to make the way you approach the markets, personal to you. That’s the secret. That’s the holy grail. It’s about you executing your edge. It’s not about copying someone else’s edge and trading it.


How to get a forex trading strategy?


So, now you know what a strategy is, what to look for and why you need one, the next question becomes: how to get a good forex trading strategy? You get a forex trading strategy by learning concepts. We at CDFX Trading always tell beginners to focus their first year of their career on being a sponge. Learn a lot of concepts and take note of what you fully understand and what not. At the end of your first year, you will have an entire overview of the concepts you understand and like, and the ones you don’t. Then it’s time to look at yourself. Do the concepts fit with your life? Do they fit with your personality? Ditch everything that doesn’t fit with you, your lifestyle or that you don’t fully understand. You now have a list of concepts that you can work with.


Then it’s time to make rules, test the concepts, build a plan and a trading strategy. Confirm your trading edge by testing the rules over years of data. Keep statistics on the performance. Track different filters. This phase takes a lot of time, but is essential if you want to develop a real and profitable forex trading edge. Beginners usually don’t take the time to do these steps and then experience a lot of “psychological issues”. The thing is, if they took the time to test their strategy, they would have a lot more confidence and wouldn’t have these issues at all.


Recap


A forex trading strategy allows you to know when the odds are in your favor. It gives you a framework to enter the markets and extract profits. Without a trading strategy, you are simply being the guy that goes to the casino every Friday night, and loses his money and gets pissed off. With a trading plan, a trading strategy with edge that fits with your personality, you are the owner of the casino that is making profits, in peace. You decide which one you want to be.


Take action now, start with studying, develop your trading edge, test things out. This is really the only way to have any chance at winning at forex trading. If you want help or you want access to a mechanical trading strategy, you might be interested in our 1-on-1 coaching program. During this program we teach you step by step, to build your own mechanical trading strategy. We teach you the profitable concepts we use. Next to that we also teach you some discretionary elements that can greatly improve your performance.


If you have any questions, you can also contact us. We do our best to respond as quickly as possible. Good luck on your trading journey!

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