What Is Wrong With My Forex Strategy
In today forex faq, we have a question from one of our fellow traders.
Below is the question:
I have been trading about 3 months to 4 month So far I have not made any profit.. Actually i have lost about $1000 USD. I use the MACD indicator, moving average time series and stochastic . I am a day trader and also sometimes a scalper. What am I doing wrong? Please Help!
First of all, I must say that you are making a big mistake. You are trading LIVE account with your hard earn money without a reliable forex strategy. You should trade with a demo account first until you are able to produce consecutive profitable months before moving to live trading.
I can understand the anxiety of most of you who wants to make money from trading fast. However it is this exact anxiety that is costing you your hard earn money. Trading forex is not as simple as what most advertisement made it to be. It requires you to have a reliable forex strategy, the ability to execute it without mistakes as well as the patience to wait for the setup.
As for what is wrong with your strategy, I am unable to tell you as I do not know how you enter your trade and how you exit them. My personal suggestion for you now is to stop trading live and move to demo account first.
With the demo account, you should monitor the winning percentage of your strategy. You should record down the number of wins and number of loses that you have made in your demo account. A decent strategy should have a 60% to 70% winning percentage.
If your forex strategy has at least 60% winning percentage, you should now look into the risk reward ratio. You should record down the number of pips that you usually lose in a trade and the profit that you take from a successful trade.
I enter a trade with 30 pips stop loss (Risk) and take profit at 90 pips (Reward), I will have a risk reward ratio of 1:3.
A decent risk reward ratio is anything more than 1:2
If your strategy does not have a risk reward ratio of at least 1:2, you should start to look for another one.
The key to successful trading lies in the risk reward ratio followed by the winning percentage. With a high risk reward ratio, you can afford to have a low winning percentage.
If you trade with a stratgy with risk reward of 1:4 and have a winning percentage of 30%. This means that you are only winning 3 out of 10 trades.
Let says that you place a stop loss of 20 pips per trade and profit at 80 pips.
3 wins = 3 x 80 = 240 pips
7 loses = 7 x 20 = 140 pips
You are still winning 100 pips despite losing most of your trades.
Now you understand the power of risk reward ratio?
In fact, all professional traders rely on high risk reward ratio to make money. Imagine you have a risk reward of 1:4 and the strategy has a winning percentage of 60 to 70%, you are going to make a lot of money from it.
I hope that I have answered your question and if you guys have anything to share regarding this question, do feel free to give your comments below.