Forex trading strategy plays a crucial role in minimizing the financial casualties during the market crash. Professional traders in Hong Kong always suggest the beginners adopt a trading strategy to control their trade instead of controlling the market. Nobody can escape the market crash. All that they can do is to stand firm and stick to a strategy to avoid losses.
Steps to develop a professional trading strategy
A trader can follow some steps to develop a solid professional trading strategy.
1. Realizing the market cycles
After looking at the chart, we may easily get an idea about the market’s movement and its phases. Following a specific timeframe, currency pair, or a market doesn’t matter, all the markets show similar behavior from time to time. Remember that the sequence and the rhythm of the market will vary. So, the market phases like – breakout, pullback, bottom, early trend, mature trend, top, etc. can help you make a price chart.
It may seem too theoretical, and you may think that the real condition can be different from this theory, but it is entirely wrong. You can take a look at a market graph and can observe the movement and the rhythm. If you have a bit of analyzing knowledge, you can grab the move. It’s more like to learning to invest in futures where precise actions are required. So, careful about your actions.
2. Select the tools and indicators
Many Forex traders make this mistake by avoiding important tools or indicators. Sometimes, they choose a few indicators and try to apply those to the chart every time without realizing the market phase. Remember that to deal with every market phase, and you have to use different indicators and tools since they are designed to work for a particular situation. Below we are mentioning some useful tools for certain situations –
- Phase – bottom. Tools and indicators – Support and resistance, and oscillators
- Phase – breakout. Tools and indicators – Momentum indicators, and support and resistance.
- Phase – pullback. Tools and indicators – Support and resistance, trendlines, and moving averages.
- Phase – early trends. Tools and indicators – Moving averages, trendlines, and momentum indicators.
- Phase – consolidations. Tools and indicators – Support and resistance, oscillators, and trendlines.
- Phase – late trends. Tools and indicators – Momentum indicators, moving averages, and trendlines.
3. Select the timeframe
You can find your trends, breakouts, or pullbacks across the timeframes, and it doesn’t matter what kind of timeframe you have chosen because the arrangement will do its work throughout all the timeframes. Professional Forex traders state that no timeframe is relatively better. However, remember that every retailer is different because they have their unique plans. Choose a timeframe that suits you psychologically. If you think that a higher timeframe can affect you psychologically, you can choose the lower timeframes as they are better. There are no best timeframes, so choosing a timeframe based on the personality should be prioritized.
4. Put everything together
This step is regarded as a fun part because you will come to this step after making everything clear. But before advancing to this step, make sure that you have chosen the kind of investor you want to be, which tools as well as the timeframes you will utilize, which market phase you wish to work in. After making all these things clear, it is time to develop your rules. After making the rules, you can develop those valuable and professional trading strategies.
To make rules, you need to set up the following – your entries and exits, stops and targets, risk and money management, trade management, risk to reward ratio, and so on. If you can become clear about these issues, you can develop a solid and professional trading strategy.
After making the rules, use them in the market to realize the market situation and the pattern. You can easily realize what to include in the rules and what to eliminate. Only after this you can make the adjustments and develop a good trading strategy.
These are the four crucial steps to developing a professional trading strategy.