8 Requirements for Developing Forex Winning Strategies

1. HAVE A POSITIVE OBJECTIVE

Objective means “The goal intended to be attained (and which is believed to be attainable)” – TheSage’s English Dictionary and Thesaurus. 

All Forex traders have a common objective – INVEST TO GENERATE INCOME. The reason why most people decided

to invest in Forex happens to be the objective behind their trading strategy. So if you decided to invest in Forex with a wrong objective or motive then your trading strategies will certainly fail. If you want to develop a winning strategy you must have the right objective and mind frame. You must put off all unrealistic and wrong motives behind your intentions as regards the reasons why you got into Forex. Your objective is the psychological force that drives your passion in whatever you do, so it has to be right. A positive objective for a winning strategy must have the following attributes: 

     a. Not in a hurry to get rich quick i.e. gradual but steady

         and upward growth logic. 

     b. Long term approach logic. 

     c. Right motives and intensions. 

Unfortunately most traders have a wrong perception of the returns of investment in Forex before they got in. Many invested in Forex for wrong reasons. Whatever got you into Forex will play a major role in determining the kind of trading strategy you will adopt. This also will determine your success or your failure in Forex. Therefore if 80% percent of traders loose in forex, this could likely mean 80% of Forex trader’s objectives or mindset is wrong.

2. ACCURATE ENTRY/EXIT LOGIC “Eat the pie while it is

    hot and ready to serve”.

What good is a strategy that gets you 20 pips when the rally was supposed to be 100pips because of a late entry? What good is a strategy that gets you as high as 150 pips but exits at 20 pips or negative because of a late exit? An ideal winning strategy should get you in and out at the right time with best profits possible. A winning strategy must have at least 90% Accurate Entry/Exit mechanism. 

Perfection with consistent practice is the key to achieving this feat. Using very good simulating tools to test your strategy will help to fine tune and show you precise entry/exit points that would give you ideal profits. The type of indicators you use would also determine the accuracy of your entry and exit points. Don’t use lagging indicators as the major decider for trade entry or exit. They are very good in trend systems or better when combined with other indicators. You need to know how to combine trend, oscillating and other linear indicators to get an accurate entry/exit system in your strategy.

3. Identify the best Take Profit/Stop Loss Settings 

A winning Forex strategy must have good Take Profit and Stop Loss settings. You must know the highest number of pips a currency pair can get to in a session or at a particular time as well as the lowest. 

Your personal trading goals i.e. how many pips you want to achieve in a day, week or month should determine your TP/SL in your trading strategy. Consistent testing of your strategy with Forex simulating software would help you to get the best TP/SL for a winning Forex strategy development. 

4. Control! Control!! Control!!!

Any forex strategy without a control mechanism will fail someday. You should be able to design control mechanisms against likely and unlikely uncertainties. 

Also for you to benefit and maintain a winning trading strategy the following should be kept under strict control:

a. Emotions (anger, anxiety, excitement, e.t.c) 
b. Fear (of mistakes, losing a trade, uncertainties,
    decisions, e.t.c.) 
c. Impatience (trying to meet a month’s target in one day,

    can’t wait, e.t.c) 
d. Anxiety (panic, worry, nervousness, e.t.c.) 

There are times when certain market conditions toy with your senses, and emotions. At such times fear and anxiety comes in, and if not properly handled, you will likely make costly mistakes through wrong decisions. The ability to control emotions, fear, anxiety and impatience would complement your forex strategy. 

Nothing good comes out from the best trading strategy when you are under the control of fear, emotions, anxiety and impatience. 

5. Currency Pair Choice 

Currency pairs are unique in combinations and reactions. Similar effects are sometimes observed on certain currency pairs during an economic impact despite the differences in the pairs region. 

Every currency pair has a unique pattern, and therefore

should be traded differently. Some patterns are strong during the London Session or Asia Session, other currency pair patterns could be bearish, zigzag, bullish, uncertain or docile at a particular session or duration. 

Currency pairs due to their unique nature cannot fit into all types of strategies. Therefore pick a pair that fits perfectly into the logic of your strategy. You can also test your strategy with all sorts of parameters using the major currency pairs first. Compare the results, and identify the currency pair with the best performance results. Forex simulators and back testing tools can help you to decide the best currency pair that would give you the best performance and less drawdown. 

See: Forex Tool That Analyzes Better Than MT4 Strategy
       Tester

6. Ability to Recover From Loss 

There would always be downtimes in Forex, therefore every winning strategy should have a means of recovering back from loss or series of losses. Some schemes like doubling the lot size, martingale, and hedging are used to regain sharp losses. These schemes are good but can be very dangerous too. Trade mechanism or logic that increase and balance lot size as the need arise is preferable to be included in your strategy. 

7. Stress Test

This is a major requirement for developing Forex winning strategies. You can think of it as the lab or test ground where the strategy would be analyzed for unknown bugs, efficiencies, possibilities, capabilities, reliability, and likely returns on investment. 

A very good strategy written down on paper or your notepad is useless until it is has passed the stress test. There are different testing tools available for developing strategies. Some have the capacity to test and turn strategies into Expert Advisors, some have more advanced features than the regular MT4 strategy tester, while others produce deeper analysis. 

8. Good Broker 

This is the platform where the strategy would be used. It is wise to develop your strategy or get details of what you want to achieve from your strategy before choosing a broker. Your strategy could be in the form of scalping, hedging, martingale, crossover, price action, timeframe combination, news or breakout system. Some of these strategies are restricted by some brokers, and some have been banned or reviewed by some Forex Regulatory Agencies. 

Also some brokers offer proprietary platforms, which could be very good or bad for your strategy. The price feed, and the state of technology a broker utilizea can either affect your strategy positively or negatively. A true ECN broker’s platform could work better with your strategy than an STP broker’s platform (vice versa). 

Talk to your broker about your strategy and find out if their policies and trading platform supports it.

These are the 8 requirements needed for designing a winning Forex Strategy. 

Have a better requirement not listed here, share with us, leave a comment.

About Onyebuchim C. Obike I am an IT specialist in Software Programming, Networking & Telecommunication. My quest for an alternative source of income led me into Forex since 2005. My encounter in Forex over the years made me to develop a site where traders can get reliable and effective Forex Resources & Tools, that would make them successful traders. I prefer combining Technical & Fundamental techniques in trading. Follow me on facebook: www.facebook.com/fxtradecity