Globalization and rampant computerization over the past 20-25 years have changed markets beyond recognition. This primarily concerns access to markets, and the very organization of trade has undergone changes.
Working with information
Any strategy is based on working with information. The trader should analyze:
- price information. It is provided to us by the chart (in the form of Japanese candlesticks or other type);
- statistics on the asset you work with. If you trade on the stock market with securities of a certain company or industry group, then you need to study quarterly reports, the situation with the
- company’s prospects as a whole, changes in the personnel issue, company policy. In general, there are a lot of statistics, there are sites on which all the necessary information is published in a digestible form;
- general information about important events – the economic calendar will help here, but only the main news are indicated in it.
Thanks to all the same computerization, you get access to a mass of information, it is important not to drown in this ocean of data. So learn to filter information and only pay attention to important statistics.
Diversification of risks
There are two ways to diversify risks:
- try to develop a strategy suitable for all markets without exception;
- focus on 1-2 assets and use several strategies on them, suitable for different parts of the market. For example, a trending TS for working on European and American sessions and a system for trading during a flat (Japanese and Pacific sessions).
Often, focusing on one market or type of asset and deeply understanding the laws of its movement gives better results than spraying attention to several markets at once. Everything depends on the rules of your strategy.
There are also exceptions to this rule. In the same Sniper, it doesn’t matter what market the work is in. This is one of the few truly universal trading systems, work is based on support and resistance levels, and entry points appear after the chart reacts to them.
No strategy has a 100% win rate. Some of the signals do not bring profit, and this is normal.
It is important for a trader to learn how to filter signals to make a deal. It is advisable to take into work only the strongest entry points, due to this you will improve the trading efficiency. Some of the discarded entry points could bring profit, but we are primarily interested in the ratio of profitable and unprofitable trades. Winrate will increase with this approach to trading.
You can use as filters:
- graphic and candlestick patterns;
- graphical analysis tools;
- a combination of the above tools;
- opening hours of the largest financial centers in the world.
Example – trading is carried out along the trend, and the market entry is performed when the chart bounces off the Fibonacci retracement level. The approach is not bad, but you need to filter out the signals, the fact of touching the Fibo correction level itself cannot be considered a basis for entering the market.
But don’t overdo it, adding too many filters may cause your vehicle to become over-optimized. That is, everything will be fine on the test site of history, but in reality you will not be able to work profitably.
Testing trading ideas
The test itself is nothing more than a test of the viability of an idea. Do not try, while working in the MT4 tester, to adjust the settings of individual TS instruments so that you get an excellent result on history, and then immediately trade on a real account with optimized parameters.
If the result is negative in the tester, this is a reason to revise the very approach to trading. Perhaps you are using a fundamentally wrong idea, or you got carried away with filters and thereby ruined the working idea.
Risk management is the key to success
The good thing about trading is that you always remain in control of your risks (assuming there are no discipline issues). It is believed that by applying competent risk management, almost any trading method can be made profitable.
Risk management is flexible, for each trade you control it by changing either the stop loss value or by adjusting the lot size. Due to this, in any situation, it is possible to withstand the previously set risk.
Let’s look at an example. Let’s say your deposit is $ 2,000, and the risk on the transaction should not exceed 5% of the capital.
If for the picture above you select the trade volume 1.0, then the stop is equal to $ 210, which is 10.5%. The risk must be reduced, based on the conditions of the problem, it should be no more than 5%. Lot 0.47 corresponds to this risk. There was a second way – to reduce the stop in points, while maintaining the volume of the transaction.
Do not forget about transaction costs, when trading on the Forex market, we include:
- commission for transactions;
- swaps are charged when transferring a transaction to the next day;
- spreads – the difference between Bid and Ask.
TS may look great on paper, but it is the transaction costs that make it unprofitable. Example – a high-intensity scalping is performed on a currency pair with a high spread. If you do not take it into account or set it small in the tester, the strategy looks profitable in theory. But all income will be covered by the spread.
In the example above, if your scalping TS provided 10-15 trades per day in GBPCHF, then the losses due to the spread would be up to 225 pips. So transaction costs are an important part of any strategy.
A trading strategy is a complex mechanism, and there is no guarantee that everything will work perfectly harmoniously all the time. Monitoring of statistical indicators is mandatory.
Among the monitored indicators I will include:
- profit size (in% of the deposit);
- average profit and loss;
If you see that stability is decreasing, the system needs optimization.
The strategy profile includes not only the trading rules directly, but also other aspects related to trading in general. There are no trifles, you need to take into account both the time factor and operating costs, you need to try to diversify risks and prioritize stability, not momentary results.
Perhaps you thought the recommendations were too general in nature. You will understand their significance only after you yourself try to build your own trading strategy from scratch.