Do you have a solid and effective Forex strategy? Make sure you aren’t trading in this fast-paced market without one.
Forex traders have many things working against them. One thing in particular stands out. It’s not flattering, but that doesn’t make it less true.
The biggest thing working against most Forex traders is… themselves.
Studies show that trader error is a major cause of high Forex failure rates. This includes basic mistakes, lack of planning and weak or ineffective strategies.
Forex trading may be hard, but it’s not impossible. In this article, I am going to show you 5 ways to bulletproof your entries. You can use these methods to create a robust Forex trading strategy and simplify your path to success.
Forex Strategy – Bulletproof Way #1: Choose the right timeframe
Forex time intervals are a personal consideration. But getting to make the choice yourself doesn’t make things any easier. In fact, the paradox of choice can complicate matters.
Many traders default to the first timeframe that grabs their attention, and use that one from then on. Others jump from timeframe to timeframe, trying to find the perfect one. These aren’t the most effective way to chose what timeframe will work best for your trading.
So what is the most effective way to chose the timeframe(s) you will use?
The answer comes back to you, the trader. It’s important to first understand how you like to trade.
If you’re unsure how you like to trade, don’t worry. Look at the following considerations, and it will become clear to you.
You may be better suited to faster timeframes if you:
- Like to see a trade unfold sooner rather than later, and get impatient waiting for trades that take a long time. More bars equals more attention which translates to less boredom.
- Enjoy paying close attention to your trading screens while a trade is on. A faster time interval means you have to stay more engaged so you don’t miss key setups.
- Struggle to maintain trade discipline over long time periods. Every extra second is a chance to do something impulsive, like move a stop or take profits too early. The faster the timeframe, the less chance for mischief.
You may be better suited to slower timeframes if you:
- Enjoy having time to plan and manage a trade at a less frantic pace. Slower timeframes give you time to think, which can be a great advantage if you like having time to analyze.
- Want to put on more than one trade at the same time. Slower timeframes give you more time to manage trades so you can put more of them on and still perform well.
- Value the ability to get away from your trading screens, even while positions are on. With longer timeframes, you have more time freedom in your day.
Most of us traders will have a little of both of these types in us. I know I sure do. Sometimes certain aspects will even contrast. For example, I enjoy having time freedom (which leads me to the slower timeframes). But at the same time, I like to see things happen fast (which would lead me to the faster timeframes).
The important thing is to figure out which of these considerations are most important to you. Then choose the best-fit timeframe for yourself based on this.
No timeframe will ever be perfect. But if you choose well, it can be a good match to your trading style and personality. And most important, you’ll have taken a step towards bulletproofing your Forex strategy.
Forex Strategy – Bulletproof Way #2: Keep it strategically simple
K.I.S.S. = Keep It Simple Stupid
Here is an alternative to this famous saying, made more relevant for traders:
“K.I.S.S = Keep It Strategically Simple.”
Complexity is the enemy of great trading. Many traders make the mistake of associating complexity with quality. They think that the more moving parts in a strategy, the greater the chance of profit.
I am here to debunk this myth right now. The best Forex strategies are ones that are simple in design and simple to execute.
Think about an entry signal that has a 10 point checklist to trigger. Now imagine applying that in live trading on a minute chart. What are the chances that you (or any trader) can keep track of all 10 checklist criteria?
If a trade does not get identified in real time, that trade will get missed. Missed trades cost money. The more complex a strategy is, the more chances things – important things – will get missed.
Make your Forex entries more effective by keeping them simple. This age-old wisdom will go a long way in helping you create a solid Forex strategy.
Forex Strategy – Bulletproof Way #3: Harness the benefits of sizing
One of the most important aspects of any trade is its size. This is the amount of money that it represents, both in initial size and in total risk.
A great axiom in trading is to keep your risk small and constant. There’s no use winning on 4 trades that make $250 each if the fifth one loses $3,000.
Forex is the market where there is the greatest ability to finesse sizing and dollar risk. You can use this to your advantage, but only if you plan ahead.
If you want to risk $200, make sure you size your position to risk $200. Don’t try to feel your way into a trade. Decide up front the maximum it will cost if it goes against you.
For example, if you identify a trade that has a $20 risk for every $1000 in currency, decide what risk you want to take. If that’s $200 total, then engage in a $10,000 position.
Control over trade sizing is a fantastic feature of the Forex market. But this feature is only a benefit if used in the right way. Make sure that you plan ahead to cap your risk at the right level. If you do this right, your Forex entries will be more sound.
Forex Strategy – Bulletproof Way #4: Start with fixed outcomes in mind
Once you have identified a good entry (see Way #2 above), you can combine this with fixed outcomes. A fixed outcome is a pre-set plan for how you will exit a trade. Usually it will come in the form of a stop limit or profit taking order.
Here’s an example:
Let’s take a trade entry where the initial stop is $50 away. The associated profit target is $75 higher. You could put the stop order and profit target on at any time. But if you put them on right from the start, you are in a far better position.
The benefits of putting them on right away are:
- It reduces the risk of changing your mind and moving the stop around to take on more risk.
- Your profit target will already be set, so you can relax without wondering when to take profits.
- It’s good practice in case something pulls you away from your screens. Your trade can function without you right from the start.
A convenient way to bind together the protective stop and profit target is to use an OCO (one cancels all) order. The OCO qualification keeps both orders from executing in the same trade. Either your stop or your profit target will execute, but never both.
“Fix your outcomes and you will cut down on chaos in your trading.”
Brokers like Interactive Brokers and software platforms like NinjaTrader can automate this process. They allow you to preset the OCO so everything happens at once when you put a trade on.
Identifying good entries is hard enough work. Keep your post-trade management simple and automate where possible. Bulletproof your Forex strategies by setting fixed outcomes right from the start.
Forex Strategy – Bulletproof Way #5: Reference economic calendars
Economic releases can have a large impact on the Forex pair you are trading. The world is full of uncertainty and unpredictable events. These can create havoc in the Forex market.
There is zero reason to add to the volatility in your trading by missing something important. You don’t want to get caught unawares.
Watch a Forex calendar or an international economic calendar. Make sure you check it daily before you trade for scheduled economic releases.
Imagine the damage to your account for missed big news. For example, if you placed a trade minutes before a Federal Reserve announcement. Or how about right before an ECB rate decision.
I have seen the damage happen to Forex traders who missed news, and it is not pretty. I don’t want this to happen to you.
The majority of the Forex calendars available are free and are easy to access. Make sure you use one so that you avoid walking towards a potential cliff with a blindfold on. You will improve your Forex entries if you keep a close eye on events that matter to your trading.
Conclusion
Forex strategies can be a great deal simpler and more effective than many traders make them. Use the 5 strategies to bulletproof your Forex entries to get a head start on the trading outcomes you want.
For more day trading techniques, tools & strategies, check out these articles:
- NinjaTrader: Review Of The Software & Brokerage
- Best Stock Trading Strategy Keys To Performance
- Market Profile Day Trading Strategies In Focus
Make sure you bulletproof your Forex entries by using these strategies.
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