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Five Fundamentals of a Good Trading Strategy

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One of the most important things that a trader needs in order to be successful is a good trading strategy. This is one of the first things you need to figure out as a forex trader because it is crucial to have a plan outlined so that you know how you want to trade and what your goals are. There are a lot of different strategies out there, some focus on day trading, while others pay more attention to risk-management, making smaller profits that add up, and so on. No matter which strategy you choose, there are 5 important elements that your chosen strategy needs to incorporate. 

Time Management

You need to invest some time into trading if you want to be successful. This doesn’t mean that you have to quit your job and devote all your time to trading, but you do need to make sure that you have enough extra time to take trading up. Once you’ve figured out how much time you have to trade, you’ll want to find a strategy that you can maintain. If a strategy requires multiple hours a day sitting in front of your computer but you can only trade in shorter intervals, then it won’t work for you. 

Risk-Management

You’ll need to decide how much you’re willing to risk on each trade before choosing a strategy. The truth is that most experts don’t recommend risking more than 1% of your account balance on any one trade. This can account for slower profits but will ensure that it does not break you if you make a bad move. Trust us, we’ve heard stories about big-league traders losing $25,000 or more on one trade thanks to a lack of these precautions. On the other hand, some traders prefer taking more risks with the chance of making a bigger profit. We’d recommend sticking with the expert’s recommendation if you’re a beginner or don’t have a lot of money invested just yet. Of course, what you’re willing to risk is up to you and you need a strategy that follows those guidelines. 

Making Money

Your trading strategy obviously needs to be profitable with the goal of making money (while minimizing your risk). Of course, your strategy needs to outline some type of plan to bring in the money. What does the strategy consider? Is it based on trends, making small profits through multiple trades, or something else? You should believe in the things that your strategy is based on. 

Easy to Follow

This doesn’t mean that your strategy needs to be simple, only that it needs to be easy to follow from your own perspective. If a strategy confuses you, then you’re going to have a hard time following it correctly. If you try your best to understand a more complex strategy but can’t figure out all the little details, you should try moving on to something else. Remember that a complicated strategy is not necessarily better than a simple one. 

Works with your Broker

Some strategies won’t work with your chosen broker or trading platform. For example, some brokers or platforms do not allow scalping, which means that scalpers can’t use their strategy on those platforms. If you already have a broker, you should check out their terms and conditions so that you know what is and isn’t allowed before choosing a strategy. 

 

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