Test the Trading Strategy

Forex trading a few decades back was carried on by veteran traders with just the pencil and paper. And they happened to be some of the most sophisticated traders ever in the history-with no computers or dealing desks. It is here, where the importance of formulating strategy comes into focus. For, that is what most decides whether the trading will be successful.
Some questions must be considered before zeroing in on a given forex strategy for its accuracy, including some of these:
• Is the strategy based on range or the trend.
• If the strategy is range based what can it offer to trade around the trends and vice versa.
• Is the strategy for intraday or planned for longer trading signals.
• If the strategy is for day trading what and how many hours do you need to watch the screen.
• If the strategy is for longer term, what is calculated drawdown in pips.
• Does the strategy have any historical performance on real accounts for more than one year.
• Does the strategy have particular money and risk management rules attached to it.
• What have been the highest and lowest risks to reward ratio of the previous year’s trades.
• Does the strategy have an exit or stop loss for varied market scenarios


Its best never, and I don’t usually say ‘never’, to apply a new strategy on live account unless it has been tested at least over more than a year or has been approved by some expert trader. Expert traders are wise as they have already practiced disciplined trading for a long time before trying anything with the real money. Forex trading can be best treated a science and not a gamble.

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Flexibilty in Your Trading Plan

Trading plans need constant degree of flexibility depending on the previous success or failure of the trades. There are various ways to size a position according to the total equity-simple as well as sophisticated. The easiest of them is not to use any more than 1-2% of the total equity, like discussed in one of the previous posts on risk management. A series of successful trades can let you gradually increase the position size. One of best recommended approaches is to establish the equity and keep the trading “within the means”. Taking too large a position and losing significant amounts on it can always be avoided. Losses lead to shrinking of each subsequent position.


Trading plans also need constant modifications because of the highly volatile nature of the Forex market and its conditions. Trading success is thoroughly determined by planning as well as constantly amending the plan for the better. We really need not carve out the trading plan on stone-the plan must be consistently made better. Here also lays the trap most novice traders get caught into. Changing the plan on very short term conditions can lead to severe results.


The catch is this-trading rudiments need to be robust.That trading plan is the best which can survive the random market changes with some degree of flexibility but that doesn’t need to be reconsidered on every other trade.

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