This post will provide a rules-based forex trading strategy, as well as a short list of guidelines for better trade entry. Applying these guidelines to your foreign exchange trading should greatly improve your transaction entry accuracy and pip totals. Visit MultiBank Group
To begin, we will go over some ground principles for a basic but efficient forex trading strategy. If you want to restrict yourself to a certain number of transactions while still maximizing your outcomes and overall pips caught, you may do so by increasing the number of rules you use in your forex trading.
Why Follow Prescribed Rules When Trading Forex?
In forex trading, establishing a set of rules might help you develop a comprehensive strategy. It also allows you to put your trading strategy to the test. Contrast this with haphazardly entering trades. The rules ought to be detailed rather than vague. A wonderful piece of advice for newcomers to the foreign exchange market is to develop a set of guidelines that tell them when to make their first purchases and when to make their first sales.
Traders who follow a set of rules rather than their gut instincts can avoid making costly mistakes as they move from transaction to trade. All you must do is play by the book. The guidelines you establish ought to be straightforward. If a rule, method, or set of technical indicators is too complicated to explain, no trader should use it.
You can increase your chances of success in forex trading by developing and strictly adhering to a set of rules that govern when and how you initiate trades. If you find that you’re losing money on a regular basis with very few, if any, winning trades, it’s likely that your trading rules or system are flawed. Give up the system and replace it with a new one governed by a different set of rules. With demo trading, you may test out various strategies without worrying about losing real money.
How to Know If Your Strategy is Working
You can tell your method isn’t working if you try trading demo currency pairs according to your guidelines and consistently lose money. Because technical indicators are so common in the forex market despite their ineffectiveness, they are likely to blame.
Those that trade Forex with a rules-based system nearly often rely on technical indicators, upon which their trading rules are founded. Because of this, there will be no pips and hence, no frustration. It’s time to abandon the useless technical indicators and replace them with guidelines for forex trading that don’t rely on them.
Rule-based forex systems based on technical indicators are certain to fail, with occasional little gains at most. Eliminating ineffective trading rules is a crucial part of setting up a robust trading system. Technical indicators offer thousands of permutations, but any forex trader will tell you that the pips just aren’t there.
A Rule-Based Forex Trading System That Works
Rule-following is essential while engaging in foreign exchange trading, and those regulations should be straightforward rather than convoluted. A trader should be able to understand the regulations of any other trader with relative ease. There are no “gurus” or mysterious processes involved. An example of a standard five-rule entry system for any trade during the major Forex trading session is shown below.
- RULE 1 – First and foremost, always trade with the dominant trend on higher time frames.
- RULE 2 – If you’re looking to purchase, there should be no nearby resistance, and if you’re looking to sell, there should be no nearby support; this rule of thumb should be applied to all trades.
- RULE 3 – Only transact when one currency is strong and the other is weak or vice versa.
- RULE 4 – Stick to the regular forex trading hours for a minimum of 6 months.
- RULE 5 – Start with a demo account, graduate to trading micro lots, and finally, work your way up to trading mini lots. Acquire more practical experience.
A forex trader who follows the five criteria can increase their profits significantly without using any complex technical analysis or indicators. This manner, you may test the reliability of your trading strategy with virtual funds before risking your own money in the actual market.
Without relying on technical indicators or complex systems, these five rules may be quickly put into practice by any forex trader across a wide variety of currency pairs. These guidelines are simple enough that anyone can follow them. It is possible for a trader to identify the main trend with the help of certain free and simple exponential moving averages.
Rule-Based Management of One’s Financial Resources
Rules for managing one’s financial resources are an essential component of any rule-based forex trading system that is worth its salt. In forex trading, in addition to the five rules for trade entry that were described above, one can additionally have rules for money management. First, we’ll go over three fundamental guidelines for managing your finances, and then we’ll move on from there.
- Rule 1 of Money Management – is to ensure that every trade includes a stop order.
- Rule 2 of Money Management – states that you should scale out half of your lots and move the stop to break even once the number of positive pips associated with your trade entrance reaches +40-50 or higher.
- Rule 3 of Money Management – states that you should never enter a trade unless there is a chance that you will gain at least three pips for every pip that you risk. This is a minimum of a money management ratio of plus three to one. For instance, if you start your trade with a stop of 30 pips, you should aim to make at least 100 pips from the potential profit of that deal. This is the risk-to-reward ratio that has been predetermined; in this case, it is +3.3 to 1, which is equal to 100 divided by 30. Forex traders desire more of a focus on improving their risk management practices across all their trades.
The Bottom Line
This post can be used by any forex trader to learn the five basic principles for trade entry in forex trading and the three basic rules for managing money in forex trading. If you follow these five fundamental guidelines, you will see a marked improvement in the quality of your trades. Know more MultiBank Group
Once you have gained more expertise and success in trading, you can begin experimenting with other guidelines to add into your trading strategy. After you’ve gained some experience, you might decide to relax some of the guidelines sometimes, depending on the circumstances presented to you by the market.