Need to Change Forex Trading Strategies?
There are times when you experience a loss even though you have implemented the trading strategy correctly, in the sense that it matches the rules set by the trading system. Sometimes losses after losses even occur in a row. You have understood that forex trading is indeed risky, but that the success losses make you wonder if the trading system that you are using is truly effective?
If you have understood that risk is indeed an integral part of trading, then your mindset is correct. That you have doubts about the effectiveness and accuracy of the trading system that you use, that’s another thing. You need to know that not only have you ever felt something like that.
Then what can you do?
Stay calm and stick to the plan
Remember that before you decide to implement a particular trading strategy, you have already conducted a trial first. The trial is not enough to be done only a few times, but must be within a certain period.
There are two stages of testing a trading system . The first stage is backtest , which is to use price movement data some time before. We recommend backtesting at least with movement data for the past three years, so you can find out the trading system’s reaction in various market conditions.
The next step is forward test , which is trading in real market situations.The forward test stage is further divided into two stages: demo and real .In the demo stage, you try the system (precisely: simulation) by making a transaction on a demo account.
Forward test this demo stage should also not be done in a hurry. At least you do it for six months consistently. At least three months. When you can show positive results, then you can proceed to the real stage in the real account.
So, there is no reason to quickly despair with the trading strategy that you use even though – for example – when there is a lot of losses. After all, you have already proven that the trading system or strategy is indeed profitable.
But there is still a question: why do losses occur repeatedly? Well, to answer that curiosity, do the next step: review market conditions.
Review market conditions
Not all trading systems can work well in all market conditions. For example, a trend following trading system is usually unable to provide satisfactory results when the market is sideways or flat . On the other hand, a trading system that utilizes a narrow range is usually also stagnant when treated to a long market rally .
So, when the losses you experience begin to feel “unnatural”, try to review the current market conditions before deciding to change the trading system that you already have.
Try evaluating whether the market conditions at that time really allowed the use of the trading system?
Adjust the trading plan
Trading plan cannot be rigid. One form of flexibility in your trading plan is adjusting capital management and risk limitation.
If for example in the previous trading plan you set a 5% risk tolerance per transaction, change it to – for example – 3%, if possible.
If at first you set a 1: 2 risk-to-reward ratio, try to compromise a little by reducing the ratio to 1: 1.
Don’t forget to also adjust risk tolerance according to the latest capital conditions. If for example your initial capital is $ 1,000, with a 5% risk tolerance per transaction, then the risk that you face is a loss of $ 500 per transaction.
But if because of the losses that occur in your capital – say – $ 700, then you must adjust your risk tolerance. Even if you will still use the 5% limit, then you have to calculate it from the remaining capital, which is $ 700.Thus, the risk per transaction then becomes 5% from $ 700, which is $ 35. Thus, your “breath” in the world of forex trading will be longer.
Also review your capital strength, maybe your capital is too small to be able to optimize the trading system that you have. For example, I tried to implement a trading strategy with minimal funds and it proved difficult to succeed. That’s because capital constraints make me not free to “catch” opportunities in several currency pairs at once.
Consider trading system modifications
If you really feel – of course through an objective analysis – that the trading system that you use can no longer meet market conditions, it doesn’t hurt to make improvements.
You can try to look back, which parts might be missed. Has the system been “complete”, in the sense that it has standard components? What is meant by “standard components” for example is a trend indicator, a “trigger” indicator to get information when opening a position and an indicator that can give you information when to close a position.
If it’s not complete, try completing it. If it’s complete, try repairing and if possible: upgrade .
So, do not rush to change the strategy you have, because it also means you have to re-adapt in implementing a new strategy. Before deciding to “move to another heart”, try to do the steps above.