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Winning Strategy in FOREX

May 06, 2011 1:01 PM ET
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In Currency Trading there are a multitude of strategies that can be profitable. I don’t care which strategy you use but if you don’t overlay your strategy with the 5 points below then I believe that the probability of success will be really low.


1 Always Use Stop Losses – I cannot stress this enough. To be able to use stop losses you have to accept them as a cost of doing business. The same way a shopkeeper has to pay for rent or electricity, the trader has to pay for Stop losses. Usually new traders do not like to use Stop Losses because many times the price returns towards their initial entry and they end up being in the money. So in their mind, using a stop loss would only create an unnecessary red spot in their account. But you might find yourself in a scenario where the price does not return to your entry and your account gets wiped out.

Remember, trading is a marathon and not a sprint. You have to survive for a while until you learn how to trade. And the only way to survive is by using stop losses!

2 Multi-Timeframe Analysis – You might have a favorite time frame to trade. If you don’t then you should. Choose one so you learn the ins and outs of trading within that timeframe. But always look out on the next timeframe to make sure you are on the correct side of the trend and that you are not selling into bigger timeframe support or buying into bigger timeframe resistance. For example, I always trade on the 15 minute chart but always consult the 1H timeframe.

3
Keep it Simple but not too simple – Trading should be simple enough so that decision making is clear and not complicated but you should keep in mind that confluence is important as well. Confluence means that more than one indicators/price action characteristics support a trading decision. For example I might buy a pair if it bounces over its upward sloping trend line and also bouncing of a support level in addition to forming a rejection candle.

4 Learn the signal frequency of your method – You have to learn your method/strategy like the palm of your hand. I know how many signals my strategy usually generates throughout every trading session. And I know this, because I am ‘connected’ with my strategy. This means that I do not over trade. I trade the 2-3 signals a day my strategy generates and that’s it. If I start entering into more trades than what my strategy usually generates then I know I am overtrading. Over trading can kill an account, since every new trade brings new risk on the table. And as traders we hate risk!

5 Concentrate on the risk and not the profit – When you equate trading to risk management that’s when you will see your account grow. Trading is all about managing your risk. So cut your losses short. Winning trades are usually winning from the get-go. Be quick to protect your account. Personally I move my SL to entry as soon as a trade goes 15 pips in my favor. That’s a method that suits my strategy. You should protect your account as well with a method that suits your strategy.


By Peter Sans, Strategy Advisor of HotForex.com


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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