Forex Trading Strategies

Ways to Completely Sabotage Your Trading Strategy: Part 1

If you are so keen on wiping your account off the map, you are welcome to follow this new series of articles that comprise expert opinions on harmful trading habits and practices. Today, we present you with a thoughtful collection of our favorite mantras for master trading account demolition.

Yes, you read that right. These are really some of the best ways to stop trading in record time. And, today we are giving special attention to the best of the best – the very gem that possibly consumed the most souls. Meet the number 1 strategy sabotage and take your pen out – you will need it.

  • Part 1: Don’t Have a Trading Plan

Ok, ok. We’ve got you. You have your system set up. Your algorithm is there, waiting to be used. You’ve searched the internet countless times and you are ready to hit the jackpot. You could just go on and guess your next move. Bring on the adventure and the suspense!

Oops! You forgot something. Or….did you not? 

Well, it all depends on what you want to achieve.

We’d say that you may want to stay and finish this article if you really want to see how sabotage works at its finest. By the way, did you know that the word sabotage actually first meant to deliberately and maliciously destroy property

Anyway, let’s start with trading and money management biggest slips.

  • Taking action just because there seems to be movement

Traders love this one. They recognize that some action is taking place in the chart and they want to be in the zone right now, naturally without a specific plan. Expectations build up, creating a false sense of courage, and disappointment typically ensues.

The slip: Traders lack insight into the market’s nature and the skills to plan their actions. 

Corrective measure: Wait for an actual trend or a move that is worth the risk you are about to take on and knowing when to get out.

  • Not showing any inquisitiveness

Many beginners tend to take bits and pieces from different websites and/or social media pages before ever showing curiosity towards why different strategies exist and what their purpose is. Then, when their strategy renders poor results, they still don’t see the point in trying to understand what went wrong.

The slip: Many people don’t understand the value of being eager to learn and how a deeper understanding of things actually gives perspective, power, and confidence.

Corrective measure: Understand why your results do not match your initial expectations. Practice discipline in notetaking before and after every trade. Eliminate loss drivers first. Keep upgrading your strategy.

  • Embracing inconsistency everywhere

Traders often fail to see the bigger picture. They have a desire to earn a few pips here and there and they think that the sole knowledge of how to use MT4 is sufficient to get them where they want to go. Alas, strategy entails much more.

The slip: Traders have no idea what to do in every step of the trade they entered.

Corrective measure: If you plan your entry and exit points properly, you will be able to go long or short in the best possible spot. 

  • Implementing a “one size fits all” approach

After much studying, a lot of traders think that they finally get everything, so what they do is use the exact same approach for every single trade they are in.

The slip: Traders miss the point of money and trade management. When conditions are different, they still hope to get a good result with the same formula.

Corrective measure: Professionals say that if volatility levels and the time frames you are using are different for the trades you are currently in, you cannot have the exact same stop loss. You need to be adjustable, not rigid.

  • Chasing losses

Traders often fall for this trap. They feel angry with themselves and they want to make it up for the losses that they took. 

The slip: Traders think that because a trade started to go against them, they can just tweak the settings a little bit, make some changes here and there, move their stop losses as they please and the trade will finally respond to their commands.

Corrective measure: You must never make changes in the middle of trading, particularly in terms of moving your stop loss (not related to trailing stop). You may feel insecure when you see that something is not working, but if you have a plan to fall back onto, you will also be able to compare results and optimize it later.

  • Capping your upside

Some experts loudly oppose the strategy where 1:2 or 1:3 Risk/Reward ratios are used to enter a trade and then exit only when your trade well exceeds your stop loss. They believe that, this way, traders only limit their potential to earn a higher return.

The slip: With this strategy, you will miss high-yield trades that matter to the year-end line.

Corrective measure: Traders should strive to be a part of long runs where a trade can go from 1000 to 1500 pips in one go (trends seizing). This ratio strategy will prevent you from getting these big wins. While small wins are there to offset your losses, big wins are those that go directly in your pocket, professionals say.

  • Seeing success as every win you make

A lot of traders think that being a good trader is getting one win after the other. However, this is not entirely true. 

The slip: Traders forget that trading is very much about protecting the account from losses. If one’s strategy is only aimed at winning, the losses they take may overpower and outgrow all their wins.

Corrective measure: Build your strategy so that you limit the losses. Track your net gain and loss as shown in the table below, delete the losses as you improve the strategy without cutting the winners too, if possible.

So, what do professionals advise novice and underachieving traders to do?

How can we limit the losses and ensure winning?

No. 1 Advice

First of all, you must set a stop loss and take profit. Instead of capping your trades as a form of protection, you can take half of the winning trade off the table and keep the remainder running. Move your stop loss to break even and add a trailing stop as well.

What’s the benefit, you may be wondering.

This way, you will no longer be asking whether you are going to win – you are now free. You can only wonder how much you are going to win. Even if any trade goes against you, you will earn at least half, which is still better than capping the upside, experts suggest. 

Success Factors

There are two conditions you need to meet for any trading plan to reap benefits:

  • Write your trading plan step by step 
  • Follow it religiously

This is important because, if you don’t respect your plan, you will end up trading by feel, which is something we will be discussing in the next article of this series.

The thing is…great traders are not just born. They gradually work towards becoming one. 

They invest in understanding what works best along with learning more about themselves. Don’t forget that you – your personality and habits – also make an essential component and a determining factor of your success. See you next time where you will learn another set of perfect ways (not) to completely sabotage your trading strategy.

Beginners Forex Education Forex Basic Strategies

Forex Strategy: A Simple Definition

We can debate how to define a forex trading strategy but in the end, is it really important? We believe it is more important what elements are crucial and how to use them so you know you have a strategy. It is needless to say that without one you are blind and not make very far in forex trading. 

The Definition

We can find many definitions online but here is one that is simple but covers what is important: A strategy is a set of skills, tools, and information that consistently generate profitable trading decisions. We emphasize the word – consistently, so only when you have something that works over a long time you know that strategy has a meaning. It does not mean every trade or month has to be a winner, professionals usually take several positive months to conclude their trading strategy is consistent. The goal is to have profited from trading, however, we would not plan to gain percentages as goals right away simply because pursuing them might set beginner traders to think about winning only, whereas the true effect on the bottom line is about eliminating losers. Here is how to know you are on the right track to having a good strategy.

The Skill Element

Before all else, you need to be true about it. Follow your plans or everything you designed goes to waste. Your mindset has to be right to pursue any strategy or you are just playing games with yourself. Now, some traders do not rely on tools such as indicators, but they look at the charts at different timeframes and look at how the price is moving. Patterns, volume, and other aspects of the market are considered but they also consider what is going on with other markets, currencies, and any information that moves the upside/downside scale in their heads. This is the skill element of the strategy, and it takes a while to learn fundamental analysis and chart reading. Of course, there are other ways to trade where other skills are developed and could be used in a strategy. 

The Tools Element

One example is the use of indicators and rules for them. Technical traders do not want to rely much on their subjective analysis of the charts or events that drive the markets. They may have an opinion or predictions but they do not trade until their indicators confirm it. Even if they think otherwise, they listen to their tools. Their skill is to be able to create a setup of different indicators that jointly create consistently good decisions. This skill to combine the right tools also requires a lot of work. 

Technical traders are focused on indicators research and how they can make for a better overall performance with the others. They understand probabilities, statistics, and gauge what tools could mitigate losses. Also, when it is better to create a rule, like closing all trades on Fridays, they implement them into the strategy mix. Technical traders even use indicators for their money management if needed. It could be said that Price Action traders rely on fuzzy values while technical traders prefer precise points where they put Take Profit and Stop Loss orders, for example. 

The Consistency Element

Consistency is probably the hardest strategy element to achieve. You can have a strategy with inconsistent results but we regard that as an inconclusive trading solution. It is not a strategy that works in the long term. A car that does not move is not really a car, just a pile of materials. 

No strategy works every time on every market. And that is why traders spot the best market behavior for their strategies or develop different strategies for different market conditions. They look for ways to attain consistency with their strategies since they make losses in certain situations. That can only be avoided if they wait for a new period of right market conditions. Traders then implement rules to their strategies. The right market conditions have to be spotted. Technical traders have tools or indicators for that while plain chart readers just observe the candles. Forex trading is directional trading so traders of both kinds often look at the volatility and volume. They make rules based on these measurements and pick only volume/volatility levels where their strategies work best. That is why forex, precious metals, stocks, commodity traders have different strategies. 

It is not rare to see mixed strategies, technical indicators with fundamental analysis. These traders take into account more data but often they come up with conflicting signals and therefore need more time for a good setup. Does it mean it is better to mix different analyses to attain consistency? Not really, you can see pure PA or indicator traders that perform exceptionally well. 

Consistency can be achieved with a certain strategy, but as said in the beginning, a trader has to be consistent first. This side of trading is not in focus by beginners because working on the psychological part is not fun and you will not see it by reading strategy definitions. Therefore, we would also widen the consistency strategy element to the trader psychology too. This is also a skill, a rule, a tool, name it how you wish, but it is a requirement for any strategy to work. Traders that attain consistency with themselves and with the strategy are the elite in forex trading. They have one of the best “jobs” when we speak financially but also about their free time, stress, and resistance to side effects like different crises. 

Building a strategy does not stop when it becomes consistent. A trader explores any ways that the strategy becomes either more consistent or more profitable. It does not mean a trader has to change what is already working well, but exploring other markets where such a strategy with small changes could work. More opportunities open where more profits could be made. A strategy like this is evergreen and could be regarded as a holy grail in trading. 

To conclude, you have defined a strategy when you have educated yourself about how different strategies work and then design your own with specific rules, tools, or PA patterns. Have a plan for each trade this way and consider consistency building with loss elimination, money management, and having the right mindset. Only then you know you have a strategy that could be built upon as you advance. 

Forex Basic Strategies

What Are the Best Forex Strategies of All Time?

It is not every day that you come across a strategy that has been used for many years, or at least not one that can be considered as a successful one. More often than not, a strategy will work for a short amount of time, maybe days, weeks, or months, but at some point in time, that strategy will stop working. Maybe the market conditions have changed, or maybe it was just luck to begin with. Whatever the reason, there is a good chance that without any changes or adaptations, a strategy will begin to struggle.

There are however a number of strategies, that at least a form of them has survived the dangers of time, they have been successfully used over a long period of time, years, in fact, there will need to be some adaptations as things change, but the principle behind them will remain the same. So let’s take a look at what some of these long-lasting strategies are, maybe one of them could be the right thing for you.

Support and Resistance Strategies

Support and resistance trading is one of the most widely used trading styles and strategies due to its simplicity and its ability to work in ranging markets, a condition that a lot of other strategies don’t work in. The strategy is pretty simple, you are looking at the support and resistance levels, they act as a block for the price, the market will be moving higher and lower between these markers, so as soon as it hits the lower support leave you will place a buy trade and as soon as it hits the higher resistance level you will place a sell trade. It is also one of the simplest strategies to chart, you can draw the lines based on previous prices and there are plenty of different indicators out there that will automatically do it for you too. 

The support and resistance levels can also be used to work out the current sentiment and trader preferences within the markets, as well as show you when to enter or not enter the markets. Having a good visual representation of when the markets change position and where it is reversing and bouncing between will give you a good idea of what the markets may do in order to help you analyse other potential strategies too.

Trend Trading Strategies

This is quite a simple strategy in the fact that you are there to trade the market trends, when the price is moving up you will buy and when the price is trading down you will sell, some people only like to buy and some only like to sell. The strategy simply requires you to identify which direction the market is moving in and then trade that same direction. The RSI indicator is a form of trend trading that has been used for a long time and will continue to be used for a long time to come. It’s very simple. When the RSI reaches above 70 or below 30 then it may represent a potential reversal. You will then set some take profit and stop losses at the support and resistance levels in order to close out the trades, this strategy can be incredibly rewarding and very simple to do, as long as the market conditions suit it though.

Fibonacci Trading Strategies

You may well have heard of Fibonacci at some point in your trading career, it is a well-known strategy and is based on a famous mathematician from Italy. This strategy is often seen as a medium to long-term strategy and it is used as a way of following the support and resistance levels that are repeating themselves. Markets are often trending and the Fibonacci style of trading does well in these sorts of trending markets. The trading system works by trading long (to buy) when the price retraces at the Fibonacci support levels when the markets are on the way up, and when the price retraces on a Fibonacci resistance level when the markets are going downwards. It can be a very reliable and profitable strategy, but it can take a bit of time to get used to.

Scalping Trading Strategies

Scalping is a type of trading that is growing in popularity, the idea of scalping is that you are looking for smaller trades, and lots of them in order to make your profits. The strategy aims to make little bits of profits from small changes in the price, both up or down. You are able to increase your profits by simply trading more and increasing the number of trades the account is taking. The lower the timeframe the more trades you will need to win, the higher the timeframe the less you will need to win in order to remain profitable. Successful scalpers will have much higher winning ratios of trades, the one benefit to scalping is that it can be profitable in ranging markets as well as trending ones, so if you get the hang of it, you will potentially be able to make money whatever the markets are doing.

Candlestick Trading Strategies

If you look at the person next to you, they will most likely have their charts set to candlestick mode, this is afterall by far the most popular style of trading chart. There are of course other styles of charts, but these candlestick charts offer a lot more ways to analyse the markets when compared to the others. Candlesticks basically show the price movement over a certain period of time, from a small time frame like 1 minute all the way up to monthly candles. They can be analysed to look at price movements, potential reversals, trends, and breakouts, they can be seen to demonstrate and indicate many different trading phenomena. Learning what the different candles mean can be extremely valuable to a trader and can be an opportunity to make a lot of profits if you are able to successfully read them.

So those are some of the different trading styles that you are able to use and that have withstood the test of time. All five of them have been used for many years and will continue to be used for many more to come, so if you are looking for a strategy that you can keep going for a long time, one of these five would be a good place for you to start.