Making A Winning Strategy In Foreign Exchange

Developing a winning strategy in foreign exchange also needs a well defined optimization process to be implemented while you are performing the one of the last few steps of strategy development. The optimization process can be thought of as using a computer to manipulate the parameters of your strategy and then comparing the results which come out from these different settings. In other words, optimization in foreign exchange trading is a process which is used to refine a trading strategy so that it turns out to be a winning strategy in foreign exchange online.

The optimization process to develop foreign exchange winning strategy needs to be initiated only when you are giving finishing touch to your forex trading strategy. A large number of traders commit a mistake by trying to trying to optimize an unfinished strategy. This results not in a winning strategy in foreign exchange but causes frustrations because optimization will not give you new ideas about what your strategy needs to make it profitable. It will only take what you already have, and then tell you what parameters will work best with that strategy. Therefore, it is important to select a strategy for optimization which is already making money with test data. This will ensure that the optimization process yields good results and you get an online foreign exchange winning strategy.

You should optimize your strategy in the same manner which you selected for back-testing the strategy. Also, the data groups need to be the same on which you performed the tests while testing the strategy. To get an accurate picture of how changes affect your strategy, change only one parameter or setting in your strategy at a time. For example, change the length of the fast moving-average and see what the results are. When you find an acceptable value, then change the length of the slow moving-average and do the same tests. Generally, when you optimize, adhere to the same standards that you found were important in your historical back testing.

It is interesting to note that the only point of difference between the optimization process to develop foreign exchange winning strategy and historical back testing is the state of your strategy when you begin each step. When you started testing, your strategy was in its infant stages, and when you optimize, your strategy should be near completion.

In order to minimize the chances that your strategy will, you can take the following steps.

Develop your winning strategy in foreign exchange based on market data: You must have a through understanding of the market data you are choosing. Never go t go for the indicator which you don’t understands because it does not make any market sense and optimize for the best parameters is a real prescription for failure. Make sure your indicators and signals are logical and are designed to capture the market activity that you intend. You also need to keep your strategy simple because the profitability of a strategy is inversely proportional to its complexity. Keeping this rule in mind, you should avoid too many signals. Also, another important point while you develop foreign exchange winning strategy is the use of set up and entry techniques. Your chances of producing a sound profitable strategy are dramatically improved by using the concept of set-up and entry. Make sure that the strategy works on variety of securities. Last but not the least perform backward and forward testing on your trading strategy to make it a online foreign exchange winning strategy.

Thus, we see that optimization can transform your strategy into a winning strategy in foreign exchange online. It is really a very useful technique which allows you to play with the parameters of your strategy without changing its core functions.