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Reasons Why You Must Have A Trading Strategy

Reasons Why You Must Have A Trading Strategy

Forex trading is mostly about method and discipline, if you do not have a strategy or discipline to follow it strictly, you are exposing yourself to potential heavy losses that can wipe out your account sooner than you may think. Consistent profits without having a trading strategy in place are almost impossible. A very important thing to remember here is that no matter what strategy you use, you are bound to see losses every now and again, not even the most successful traders have 100% success rate. The key is to find a strategy that has a higher winning ratio and use it together with effective money management.

A trading strategy is a system designed with the help of a variety of technical analysis tools to determine your entry and exit points. Having a trading strategy means setting rules and parameters for executing a trade, following that strategy; you only execute a trade when the price movement adheres to the rules and parameters of your strategy.

A Good Trading Strategy
A good strategy is one that can produce clear signals without relying on outside factors to determine the validity of those signals. A good trading strategy would also insure that you have a risk-reward ratio that can keep you in profit zone even if you lose a significant percentage of your trades. Minimum acceptable risk-reward ratio is 1:2, which means risking $100 for a target of $200. This way, you’ll still be in profit even if you lose one trade after each winning trade. While 1:2 is acceptable, a good risk-reward ratio would be 1:3 at least, which is easily attainable with a good trading strategy.

Benefits Of Having A Trading System
Coping with a series of losses is the most difficult aspect of forex trading and this is where many traders are vulnerable to letting emotions into their trading decision. When you refuse to exit a losing trade, it’s your emotions that are keeping you from dealing with a loss; this may incur losses that would require a substantially long duration to revive from. This is why a trader must have a trading strategy that would dictate their trading decision in order to keep the emotions out.

Another benefit of having a trading system is that since a system is already optimized you do not need a lot of time to analyze the market before you could initiate a trade. Major trading platforms also allow you to automate the system to generate signals further simplifying your job and reducing the time required to execute a trade.

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