Tuesday, April 24, 2012

What Is The Best Forex Trading Strategy?

May 6, 2010 by  
Filed under Forex Tips


This is one of the most asked questions in forex forum as well as Yahoo answer. After reading and answering the same questions for so many times, I decided to write an article to address this issue.

Every new trader who join this field went in search for a system that can produce them 100% winning which most people called the Holy Grail System. But when they trade the system a few times and generate one single loss, they will think that it is a lousy system and then start to switch to another system that they can find thinking that it is better than the previous one.

These search can go on for months or even years for some traders wasting their time and opportunity cost. Let’s be frank, there is no ‘Holy Grail System’ in the trading arena. Even the best trader on earth make some losses in their trading and accepting loss is one of the basic criteria to be a trader.

The key to successful trading lies in your ability to stick to your trading plan when it produces some losses and trade it with high risk reward ratio.

One of the best strategy that I can think of which can produce high risk reward ratio is the breakout strategy. The breakout occurs when the market suddenly burst in a particular direction after a period of consolidation. The burst will usually gives you a decent profit and the loss will usually be much smaller compared to the profit it can produce.

Imagine you being able to generate a risk reward ratio of 3:1 for every trade, your one win can allow you to lost 3 times in a row. Let’s say that your trading strategy can gives you a 50% winning percentage. If you trade 100 times in a month, you will win half of the time and lost half of the time. If your stop loss is always set at 20 pips and your target profit at 60 pips, this is what you get:

Win = 60 pips x 50 = 3,000 pips
Loss = 20 pips x 50 = 1,000 pips

Total Profit = 2,000 pips

If you are trading with a standard account, this is equivalent to $20,000. This is exactly how most successful traders make their income from. They do not have a secret system that they hid in a dark room. In fact most professional traders that I know trade with very simple strategy and a few of them don’t even trade with indicators.

Therefore you should spend some time to pick 1 or at most 2 strategies that you think suits you best. Practice them on your demo account and record down their win and loss for about 300 to 500 trades. Work out the winning percentage and as long as it can produce 50 to 60% winning, you then work on improving the risk reward ratio and you will have an atm on hand for a life time.

Other Related Posts:

  1. Is Sophisticated Forex Strategy Always Better?
  2. Forex Strategies – When Is The Best Time To Enter A Trade
  3. Forex Information: New NFA Rule 2-43(b)

Comments

One Response to “What Is The Best Forex Trading Strategy?”
  1. TradeProfits says:

    Good Job Kelvin. Simple and clear. Forex trading is not about secrets and magic indicators. Breakout strategies are my favorites as well; from pivot points or specific patterns. They work wonders. Good job. Now add this article to an FAQ, and you have saved yourself a lot of email replies :)

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