Distinguishing Between Good and Bad Trading Strategies Like a Pro

Distinguishing Between Good and Bad Trading Strategies Like a Pro

Dec 23 • Forex Trading Articles, Forex Trading Strategies • 439 Views • Comments Off on Distinguishing Between Good and Bad Trading Strategies Like a Pro

When it comes to forex trading, whether or not a trading strategy is good or bad almost entirely determines whether or not it is profitable. The success rate of a trading strategy is the best indicator of its effectiveness.

A good trading strategy yields the most profits, while a bad strategy yields a higher loss rate. However, several other factors must be considered before choosing a forex trading strategy.

A good trading strategy should be personalized

Profit is the ultimate goal of every forex trader. Different traders have different trading psychology, so different strategies are effective; however, keep that in mind when choosing a trading strategy. An unprofitable strategy is necessarily a good one. You may need help adapting it to your risk profile.

It’s because traders have different goals when it comes to trading. This is because different traders apply different risk profiles and risk management techniques. Traders may also prefer assets with varying volatility levels and risk-reward profiles due to their preferences for different types of assets.

Trading strategy should be flexible

Forex traders fall into different types depending on the timeframe in which they trade. Trading styles include scalping, day trading, swing trading, and position trading. In some cases, long-term trading can be adjusted to be almost as profitable as short-term trading. However, the use of some trading strategies is limited to a certain type of trader. It is important to adopt a trading strategy for your trading style.

It should accommodate your preferred trading time

For forex trading sessions to be successful, a trading strategy should be seamless and allow for flexibility. Retail traders need to know that forex trading occurs 24 hours a day, five days a week.

Since it might be difficult for you to trade all the time, a good trading plan should deliver consistent profit regardless of the time of day. Please make sure the trading strategy you choose is profitable during your trading hours before choosing it.

For example, you might restrict yourself to trading only during the Sydney and Asian forex sessions based on your schedule. For example, the London Daybreak trading strategy would not be appropriate in this case, as it would work best during European trading hours.

When London forex trading begins, this trading strategy performs best. This strategy’s main idea is to take advantage of increased market volume, which causes the market to trend in a particular direction.

A trader uses the strategy to capitalize on directional volatility. You will need to be awake when the London market opens if you decide to trade with the London Daybreak trading strategy. You may lose money if you use this trading strategy in other ways.

It should be profitable in the long run

A short-term look at the performance of most trading strategies won’t surprise you. Due to the short-term nature of trading strategies, it is impossible to determine their efficacy fully.

If you are lucky, you can use a trading strategy to make some profitable trades. In other words, the trading strategy was not efficient but simply unlucky. Thus, more than looking at a trading strategy’s short-term performance alone would be required to determine whether it is good.

A trading strategy’s long-term expectancy determines its value. The expectancy of a trading strategy refers to its long-term profitability. To calculate the expectancy of a trading strategy, follow this formula.

= (Percentage of win * Average size of win) – (Percentage of losses * Average size of loss)

Negative expectancy indicates a bad trading strategy. A positive value indicates the trading strategy is good, and a negative value indicates the opposite. There is no trading strategy that is always 100% profitable, so a trading strategy’s expectancy is considered.

Some trades will result in losses, while others will produce profits. Good trading strategies show that profitable trades are larger than losses for a good expectation. The overall record of your trading is profitable, so you are profitable overall.

Your trading strategy should adapt to market changes

Market fluctuations are constant in forex trading. There are periods of extreme volatility and low volatility in the forex market, as well as consolidations and trends. Identifying market transitions and offering clear exit and entry points for these transitions is part of a good trading strategy.

If your trading strategy fails to consider changes in market conditions, you may lose money. A variety of trading strategies can be useful under various market conditions, so it’s a good idea to have them on hand.

Bottom line

Trading strategies exist in various forms, and new ones emerge daily. Some are profitable, but not all are healthy. Before implementing your preferred trading strategies on your real account, please study them and test them on demo accounts.

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