How do you build your trading strategy? If you have experience with many strategies and many indicators, it will be easy for you to able to integrate or devise some of the elements that you will need to build your trading strategy in your style in addition to experience in the market in which you will work (binary options – forex – stocks – Cryptocurrency… etc.) for example in Forex, to know about price movements and their correlations to each other, you must have experience and are fully aware of what is happening in the market
Top 9 factors will help you to build a trading strategy
Whatever trading strategy you will work with, Make sure you have these essentials to ensure its success (it is possible to dispense with or add other elements after getting more experience)
Are you a scalper or an investor?
Before dealing with the nature of building a trading strategy and its details, you must ask yourself a very important question: Are you a short or long-term trader? Because the answer to this question will be the basis on which the strategy will be built, the nature and style of the short-term trader (scalper) are Quite different from a long-term (investor). Still, the basic factors in the trading strategy are similar, but the details of these factors are completely different, for example.
The Scalper
He places buy and sell orders based on a short future outlook and closes these orders in a short period, starting from 1 minute to a day, and does not care about economic indicators or current news on the pair, as he takes small profits and closes his trades quickly.
The investor
He has a long future outlook and may leave the trades open for a whole year and is interested in news and economic indicators before opening the trade and during his monitoring of the market.
Intraday trader
The day trader opens and closes his trades throughout the day and may keep these trades for the next day or two at most because his analysis is limited to the short term, but not like the scalper, as he may place stop loss and take profit in areas a little further away.
We do not say that you must be a scalper, investor, or intraday trader, but each person prefers the method in which he works and Everyone has a different lifestyle, so choose your style carefully before start building your trading strategy, think well, and make the decision.
1 – The right time to trade
the right time to trade
In the beginning, you must determine the times of your commitment to trading Are you free to trade in the morning or evening? Do you like working at news time or not? In this case, you will follow the news or avoid entering the time of the news.
Determining the time you will work is very important as if you are a scalper trader or even an intraday trader, you will not be able to trade during the news, as the impact of the news will affect your trades because most news has a very noticeable impact in the short term.
For example, if you enter a trade and you are targeting only 20 points on the EUR/USD pair and the news about unemployment rates occurs, the news completely ignores any type of analysis and proceeds according to the data about unemployment rates. In this case, you will find yourself risking losing your trade. It is also possible that the news will pass the stop loss and a slippage will occur.
On the contrary, the investor trader analyzes the pair and the news as well in the long term, but he does not care about the impact of the news in the short term, as there may be news that contradicts his analysis, but he bears the Retracement that may occur and be patient until the price reaches his target.
2 – Risk management
What percentage would you risk? The concept of Risk management is one of the most essential basics for the success of any trader. Commitment to patience and lack of greed will make you a professional trader, so choose the level of risk carefully very carefully. and I do not recommend that the level of risk be high. A profit of 15% – 20% per month is a good profit. You are entirely free to choose what you want, this is your own trading strategy, but most traders use this Risk ratio.
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But if you are a scalper trader, you may want a larger percentage than this because in this case, you will enter many trades during the day, and the trade maybe with a Risk of 1%, but if you want my opinion, this percentage is too much in the beginning, as you may trade with the trading strategy first for a month with a 0.5% risk and then increase this percentage over time.
Risk management is very important for any trading strategy. No successful or professional trader in the Forex market trades without good Risk management. When you build your trading strategy, you must choose the lowest risk percentage because, in the beginning, it is natural for some adjustments to occur to the strategy. After all, it is in the growth phase and day after day your experience in trading will increase. In this case, you can increase the risk rate as you wish.
3 – Time frame
If you have previously specified that you are a scalper, intraday, or an investor trader, it will be easy for you to choose the time frame that you will work on, for example
For the Scalper
You can work on the minimum time frame, which is 1 minute to 4 hours, and you can take a look at the daily frame to get a more accurate view of the market, But the execution of trades is on short time frames from one minute to one hour.
Intraday trader
As for the daily trader, he analyzes the market starting from the hourly time frame to the weekly, to get a good view of what is happening in the market, but he does not care about the weekly or even daily time frame. He only analyzes them to make sure of the view that the 1 hour – 4 hour time frame has.
The investor
The investor analyzes the pairs on the large time frames, starting from the Daily to the monthly, and executes his trades on the 4 Hour time frame.
4 – Entry and exit conditions
Entry and exit conditions
This part is very important, as entry and exit areas are questions that are answered in any trading strategy that you may find on the Internet because any trading strategy simply has a mission to answer this question where and when to enter the trade and when to exit from it. If you were able to answer this question, it has gone a very long way to building your trading strategy
For example, there are trading strategies that depend on entering and exiting based on the signal of the Moving Average, MACD, or Stochastic indicator, There are other strategies that have been created based on technical analysis, support and resistance areas, and trend lines.
The goal of any trading strategy is to make a profit for its owner, right? If you see a way in which you can make a profit, you can create a trading strategy through this method.
Stop loss & Take profit
There are only 2 methods to Close your trade either the trade is closed at a profit or a loss, You must know which areas you should place your stop loss in. Should you place it above the resistance Level or below the support Level, or will you use the moving average to determine the appropriate stop loss area? Knowing that the moving average is not fixed at a specific price and the price at which it is located can change at any time.
Or you prefer not to place a stop loss and will close the trade manually in the event of a signal such as a candle closing above or below an important level or waiting for a doji candle to form.
As for the Take profit, you must place the take profit before the rebound levels because if you place the take profit after the rebound levels, the price may rebound before reaching your target.
Stop loss at Entry
It is also possible to close the trade without profit or loss. For example, if the price moves against you and you want to place a stop loss at the entry level to close the trade without profit or loss, The same thing is true if the trade is on its way to the take profit. You can do the same thing if you see that the price may reverse because it may continue on its way and make you lose.
Placing a stop loss at the entry area protects your trade from losing in the event of strong news or if you want to secure your trade in case you make a mistake in the analysis. It is not necessary to use this feature, but it is available at any time if you want to add it to your trading strategy.
Entry Levels
Entry Levels are very important because many factors may make you enter the trade without any analysis or any logical reason such as fear and greed and if your emotions control you all these factors may make you completely ignore your trading strategy.
There are many entry conditions that you can put in your trading strategy and most of these factors depend on the rebound zones, This means that if you decide to enter a buy trade, when you enter this trade, the price must rise in a short time or even respect the area from which you entered and not fall much. In this case, this entry area will be very good.
The conditions you can set to determine the entry area are support and resistance lines, general and internal trend lines, and Fibonacci retracement levels.
Fibonacci
For example, in this image it is shown how the price respected the Fibonacci levels 0.61 and 0.78, knowing that the general trend was Bullish, so the trade was buy and not sell, so the entry decision was with the general trend.
The decision to enter the trade may be based on a signal from an indicator. For example, many trading strategies depend on divergence signals, It is a combination of the indicator and the price. If one of them moves in a way opposite to the other, this is considered divergence and is a signal to enter a trade.
EURUSD divergence
In this example, a divergence occurred in the EURUSD pair, as the pair created a higher high and a higher low, but the MACD indicator failed to create a higher high but rather created a lower high, and this is an indication of a divergence between the indicator and the chart price.
5 – The risk-to-reward ratio (RR)
This part is a branch of Risk management, which is determining the profit or loss that you will get in the trade, for example
1: 1 (profit = loss)
2: 1 (profit double the loss)
3: 1 (profit triple the loss)
If you want my opinion, the ratio of 2: 1 is the best. For example, if you lost two consecutive trades, a winning trade will compensate for the previous loss, taking into account the appropriate trade to place a take profit order Double the stop loss because this trade may be suitable for the trading strategy you are working on, but The area where you want to place the take profit is very close and the stop loss is far, in this case, the 2:1 ratio is not suitable and it is better not to enter the trade or reduce the RR to 1:1 to take advantage of this Good opportunity.
6 – Account balance
Some strategies require large capital, and some others require only $100 or more, so choose the capital that you will deposit to have a future vision of your Risk management (when testing the trading strategy on a demo account, the account capital must be the same as the one you will deposit In real account)
7 – Leverage
Leverage is part of Risk management as well because it maintains the margin level when opening the trade, and every trading strategy has its leverage. Some traders do not care much about the leverage and choose the highest leverage offered by the Broker To have more comfort in trading and this is not a mistake. But you have to be careful to choose leverage based on the Risk management that you will follow
It is also possible to choose the maximum leverage available with the broker in the event that you will follow strict Risk management and will open small lots and not large ones compared to your capital and you will also place a stop loss in this case choose any leverage you want
8 – Choose the right trading pairs
Choose the right trading pairs
There are pairs whose movements are violent and some of them move slowly, There are also pairs that respect analysis and respect most types of analysis, and on the contrary, there are pairs that are difficult to analyze and predict their future movement., so choose the pairs that you want to work on carefully and if you want my opinion, the US dollar pairs respect most types of analysis and You can choose the major pairs that include the USD. The best of them is the EUR/USD
9 – Indicators (not necessary)
This part is not necessary, but if you want to use indicators, it will help you with your trading strategy and making the right decisions and do not try to distract your mind with too many indicators, so be always simple in your style and the tools that you use, as the many indicators will distract your mind and with the time you will make your decisions based on the indicators that Originally it is a secondary not a primary factor in decision making
Note: These factors that you will use are a commitment from you, so after building a trading strategy and choosing the appropriate Tools, you must commit to all the criteria that you set for yourself, not a day or two, but at least 3 months, and in order not to forget any item of your trading strategy.
It is highly recommended to write the trading strategy that you will work on. On paper or on your computer to be always in front of you and not rush to test the strategy, take your time in building your trading strategy because you will work on it for a long time, and with time you will discover that there are things that you should delete and things that you should add … etc.
On your way to testing the trading strategy on a demo account, you will face many problems and difficulties such as (your failure to commit to the conditions that you set for yourself or some mistakes you made And you might think It is an ineffective trading strategy … etc.)
Do not despair at the beginning because it is possible to lose many trades in Striving to get the ideal trading strategy for you and take the time to test the strategy for a period of not less than 3 months (if you are experienced it is possible one month) so be sure always that you will succeed in your way and set basic rules (before, during, after) trading In order not to do anything that is not calculated.
Before trading
Such as (analysis, follow-up of the economic calendar, news releases, Preparing trading orders … etc)
During trading
Close the platform to avoid tension and avoid watching the account balance so that it does not affect you For example, you will close the trade when your account balance increases even though there are more profits, but the tension is the reason for this act, or if you are an investor, you can follow the economic news over the days. To be aware of what is happening in the market
After trading
Of course, there are things that you should do after every winning or losing trade. If it was a losing trade, you must discover why you lost this trade and what was wrong with it. To avoid these mistakes next time, as there is a break between each trade or Otherwise, the speed of entering into another trade indicates that the second trade was not studied and that it was reckless, but if it is a profitable trade, look at your strengths and enjoy this moment to repeat it (but do not brag about yourself) and thank God for this blessing and it is strongly advised not to enter into two consecutive trades,
Conclusion
Building a trading strategy is very possible and you can do it, but it requires you to have sufficient experience in the market to be aware enough of what you will do because you will create something new and for this work to be done to the fullest, there must be conditions and fundamentals on which this trading strategy builds and commit With it and keep in your mind all the time, taking into account the mistakes that may occur on your way to implementing or testing the strategy, you are a human being that makes mistakes, so you accept the mistake before the right thing so that you can fix it and get the profits.
