Even before considering trading in the Forex market, you have to come up with a perfect idea or form a business strategy. Without implementing an effective strategy, none can survive in the marketplace for too long. A good trading method can be built in numerous ways. However, they all follow a two-step model. The first step is to make sure that one’s winning volume is greater than his losing volume. The second one is to implement proper and effective risk-managing technique in each trade.
Essential Components to Have in a Trading Strategy
Essential components to have in a trading method are of four basic kinds
- Growing directional bias and qualify the starting
- Setting stop-loss, take-profit orders
- Defining a suitable time frame
- Utilizing risk-management
So, let’s go deeper into the making of an ideal and profit-making Forex trading strategy.
1. Making a directional bias
Creating a directional bias is all about deciding the current trend of a market. It’s all about getting the right indication on whether a market is going high or down. There are analyses like fundamental and technical, which are mostly deployed to know about such uprising or down-falling trends. Being a new trader in Singapore, you might find it hard to predict the trend while trading the mutual funds. In that case, you can visit https://www.home.saxo/en-sg/products/mutual-funds and study about this trading environment and get a clear concept.
Fundamental analysis is about judging all the market influencing factors—it about reading their current state and find out what to happen in advance. When a trader is careful enough about market influencers, there is a pretty chance that he won’t jump into an unknown and uncertain trade. At least he will have a sense of its impending direction.
Technical analysis is all about checking and analyzing some charts and patterns in order to locate a break or reverse, or states of the market. Moving averages, RSI, MACD, are some of the common technical indicators that allow traders to understand the price movement’s nature.
2. Setting Stop-loss and make-profit orders
Setting a stop-loss and pertaining profit-target is a key component of an effective trading strategy. They are not only essential, rather nowadays, but they have also been an obligatory part of entering a trade. Stop-loss and make-profit orders are critical when someone is trying to assess and set the risk/reward amount for a trade.
If a trader takes time before setting these orders and ponders out the most suitable ones who don’t only appreciate a good profit but also prevent serious loss. Most newcomers and even some professionals sometimes take these loss orders easily. They don’t think much and just set orders, which in most cases make even a profitable trade into a losing one.
3. Choosing a suitable timeframe
The Forex market has offered several timeframes to the traders, and each of them requires a trader to approach the market differently. To implement the most suitable ones in the plan, people need to know profoundly about them first. Once they understand each of their requirement and deploying process, they need to choose the one that suits their style and perception about the market.
4. Utilizing risk management
Risk management is the most crucial aspect of one’s Forex strategy. He must stick to a strict capital management parameter in order to establish a less impregnable strategy.
While determining a value for all the risk managing factors, traders should set for a reward that covers at least half the amount of risk. The higher the value of the reward to risk ratio, the better the chance for gaining a fortune. A trader can make money by going for a high risk-reward ratio even after losing more than 50 percent of the time.
The industry standard to enter a trade is around a 2 percent ratio of the risk-reward.
Other than all these criteria, one’s personality type also plays a critical role in forming an ideal Forex trading strategy. People should look into their own characteristics and personalities to develop the most suitable method.
