Strategy Testing As A Forex Trader

Strategy Testing As A Forex Trader - Trading Dispatch

Have you ever felt overwhelmed by all the strategies you know? You’ve tried most of them, and each works well in different market environments, producing fantastic results for you. So many methods at your disposal, but you are unsure when to implement them.

So you go around in circles thinking about how to determine which strategy works and when. But what if I told you all systems work IF YOU WORK… what do I mean?

7/10 times you will alter a trading strategy to accommodate your personality, lifestyle, and unique perspective on the markets. For example, you may use multiple timeframes, or have numerous indicators on your charts.

Many beginner traders believe there is only one way to trade and that Forex is a one size fits all kind of industry. However, if this were the case, every person on Wall Street and everyone in Mayfair would be the same, literally!

Trading Plan

Each trader has a tailored size. It’s a “whatever works best for you – according to the research and analysis you’ve done.” There is no problem utilizing multiple strategies at once as long as you are disciplined and stick to a trading plan.

If your trading plan includes trading a breakout retest strategy and a supply and demand strategy, that is fantastic!

BUT, if you trade different approaches that are not in your plan, you will over-extend yourself as well as over-leveraging your capital because you will be in every trade that remotely interests you.

Now this is where discipline and proper risk management matter the most. These trading fundamentals should keep you in check and prevent exceeding a certain threshold of capital exposure.

Testing Strategies

It is always best for beginner traders to test strategies on a demo account or backtest to develop a unique trading strategy.

After completing this process, you will know what market conditions you will be facing and whether the strategy is profitable or not.  

Using different strategies and stress testing each is a great idea. Here is why:

  • If you trade many markets (indices, currencies, stocks, bonds), you will likely require varying approaches in each market because the price movements differ.
  • The factors that influence commodities vs. currencies are different.
  • Different markets will have different $ values of price movement e.g. the value of a one pip move on EURUSD will not be similar to a 1 point move on the US30.

 

When considering all these points, you realize it’s a different ball game. Not only does your strategy differ, but your risk management, lot size, money management, leverage, and margin requirements will vary.

A practical way of thinking about this is as follows – You may not be able to use the Fibonacci strategy on US30, but you could use it on GBPUSD.

Now, if you want to trade both because you “like” them both, does that mean you shouldn’t? Not necessarily. It means you will need to find another way to trade US30.

However, it would be best if you stuck to what you are comfortable with and what produces the best returns for you.

 

Happy trading in 2021, fellow traders!

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