Hello and thanks for being here again!
In this article I want to show you how I structure my operations by trading in the foreign exchange market. If it can give you ideas or help you in your process, the objective of this post will be more than fulfilled. I will try to be as clear and direct as possible. I’ll go point by point:
1. How to trade
Focusing on the basics and keeping it simple. Let me explain, you don’t have to rely on hyper-complex strategies, use the software that you love and put it on the server next to your broker… you don’t have to be the best programmer, much less get dirty the graphics of your platform to win money in forex
You need systems. The systems work. Results-oriented companies and work methods are based on systems. You should start applying and creating systems because they will allow you to:
- Know what you can expect (return and risk) in results.
- measure what you do.
- Know when it is stopping working what you are applying.
Yes, that sitting in front of the computer, watching and saying “I think EUR/USD is going to rise” is the most common thing, but it is normal here to lose money. You need winning strategies to start the combat.
2. Intraday or swing trading in Forex?
This question is an interesting question and I make a small aside if you’re just starting out. Swing trading are operations that usually last several days and when we talk about intraday or day trading we refer to operations that are closed on the same day.
Ok, so which one? Like everything in life, it depends (we are already). You have to learn that there is no “best for all”. In my case I combine both operations because I dedicate myself full time to this, but if you are just starting out or are one of the people who get stressed with trading, I recommend that you focus on swing trading.
As you consolidate here, you can start to scale and seek to diversify by doing intraday. But again, this is just something I recommend based on my own experience and from people I’ve met over the years.
You may be interested: Free Class! How to trade algorithmically without programming
3. Automatic or Manual Forex Trading
Not all automated Forex trading systems are a panacea and not all discretionary or manual systems are bad. Stop looking at him like that, we’re just talking about execution. This is precisely why I opted for an automated execution. We could talk long and hard about this and if you find it interesting I can dedicate an article just to it. But think that automation is just how strategy is carried out. Whether this is a winner or loser is the basis of everything.
Automating a losing strategy does not make it a winner, it is just about applying strategies that are profitable and making sure that they are executed in the best way (in manual we always cheat solitaire).
4. Is analysis the key to trading Forex?
Many people think that technical analysis is the key to beating the market and they defend it to the last consequences. The same happens with those who think that the only way to make money in the foreign exchange market is through fundamental analysis.
So what really works? What really works results and you can check. What is the use of telling me that this or the other is the best method if you have not even sat down to get numbers. Many times it is not with what, but how. That is, they can be different valid methods if they are done well. But for this you need statistics of what you are doing.
5. Learn to create robust trading strategies
Let’s first see what a robust trading strategy is. As traders, we know what has happened in the past, but we don’t know what will happen tomorrow in the market. That is why we need systems that adapt well to changing market circumstances.
How can we know systems adapt well to changes in the spread, prices…? Simulating those alterations, something like simulating those conditions and seeing how they behave. There are different tests for this such as: Walk Forward test, Montecarlo and Multimercado.
These tests give us an idea of how robust our created trading system is and give us a reference. Be careful, I said reference, not absolute truth. Then we’ll test them, our goal is to leave as little space as possible to chance.
6. Best Forex Trading Strategies
You may be wondering how you are going to manage to create profitable strategies and start with all this. Don’t worry, there are tools for it, but the important thing here is that you know that the strategies that are usually more stable over time and give better results are:
6.1. Trading strategies with very simple entry and exit criteria
The opposite of what they may have told you. The simpler our Forex trading systems are, the more likely they will continue to work over time. I have been able to see this myself and I know it firsthand.
Also, which is more likely to fail, a system based on six indicators or a system based on one or two? That six indicators continue giving results for years and years is not easy. Instead, only one or two are more. Even so, trading systems should always be monitored.
6.2. Systems with a number of operations or trades not very high
Sometimes when we obsess over being in the market constantly making zillions of trades, we are giving our broker money out of pocket. More is not better in trading, better is better. This is about getting the most money with the least risk, not giving it to your broker.
6.3. Strategies with a controlled return/risk
You see a strategy, you look at its profit in recent months and years, and you are already thinking about connecting it. Error, always look at the return associated with the drawdown. The drawdown of your system is, in short, the maximum consecutive drop it has had. Because it is important? Because if that fall has occurred in the past, it can happen again (and bigger, believe me). Now you are thinking, what if this happens to me?
Next, I will explain it to you, but first an example of a system that meets all these characteristics (so you can see that it is simpler than it seems:
Here are more statistics:
7. Establish connection and disconnection rules for your systems
All the methods for trading sound great. The problem is when they start to lose. Some tell you that you have to continue, that the system is the system… But, what if the system is stopping working? After all, we live in a changing world and our money is not infinite.
The reality is that many people do not know how to determine when the system is failing or when this happens because they are applying it wrong. If you run the strategies in an automated way you are already saving this, then what you need is a rule to deactivate your strategies at a certain point. To do this, it is enough to monitor them with platforms such as bluefx or myfxbook to know what the performance of each one is.
8. Diversify in Forex
If we deactivate a Reuben strategy, we stop trading. Not if you activate another one that has been doing it well. It’s not about you running a Forex trading system or two, it’sand try to have different systems: the best in real and a demo base created that you can include in your real account when you deactivate one because its performance has dropped.
You can diversify by youframe me (temporality in hours), for active (different currencies) or types of systems (trend, mean reversion…).
The objective of diversifying is to seek a more stable returnWhat many people do for this is to introduce many systems without further ado, if you do this you will achieve the opposite, you will be increasing the risk.
9. What currencies to trade in Forex
I recommend that you focus on the majors or major currency pairs, especially if your broker has a high spread, since in these it is usually lower. One of the advantages of automating is that you can scale your trading and do it in different currencies, diversifying as I said before. These are the assets that I have traded in recent months:
It starts by being profitable with few (one or three assets) and as you evolve you can grow your portfolio.
10. Why invest (only) in Forex
I will not be the one to tell you that you should invest in Forex and not in another market. Each one belongs to his father and his mother and has its good and not so good things. Of course, one thing is clear, wherever you do it, remember the power of specialization. There are traders who focus on one or two assets and are profitable. In the end that’s what it’s all about, isn’t it?
This operation can be extrapolated to different assets such as raw materials, indices and cryptocurrencies. Yes, cryptocurrencies too. In fact, my operations are mainly based on currencies and cryptocurrencies (85% the first group and 15% the second). But I have to say that cryptocurrency trading has given me a pleasant surprise this year.
Again, if you’re starting out, don’t do it with too many assets or you’re going to saturate yourself. Start step by step and diversify as you evolve. Jack of all trades, master of none.
11. Steps to trade
If you have come this far, it is possible that it is not entirely clear to you how the hell I trade, so I will summarize it for you in steps:
- I think statistically profitable trading strategies and I verify through tests that they are robust.
- I put them in one demo account to make sure they work perfectly.
- One time They meet the requirements that I demand of them to pass to real.
- Consider I manage my systems by connecting and disconnecting them based on their performance (always under objective criteria).
12. How to start as a professional trader (without knowing how to program)
But Rubén, I haven’t studied computer science and I’m not particularly good at mathematics. Don’t worry if you don’t know how to program, it is possible to do all this with tools that will do it for you. For years I have programmed my own systems myself and that’s fine, but now my focus is managing them and getting the most out of them. Do not think that this is the robot that will make you earn millions of euros while you drink gin and tonic on the beach.
It is not something that I have taken out of my sleeve, we have been applying this methodology in trading academy and there is a community of algorithmic traders that have been doing things very well. We work to create good trading systems and apply rules to manage them. Here you have more information about everything we have assembled and it is (almost) free.
[Extra]: Terminology for trading
If you’re just starting out and some of the concepts you’ve read sound like Chinese to you, don’t worry, we’ve all been there. I leave you an article with the most common concepts that are usually used when trading Forex. Review them from time to time, but you don’t have to memorize them, just understand them. If there is something that does not add up to you, leave me a comment on any of these posts and I will try to explain it to you without problem.