How to Make Forex Trading Model

How to Make Forex Trading Model
Welcome to forex trading - a global market that runs 24/7, offering great opportunities for traders who are prepared to take risks.
This article discusses guidelines and outline to build a model of forex trading or currency trading. Also discussed relevant points about how forex trading is different from trading equities, as well as specific points that should be considered to build a model of forex trading.
Advantage of the market is the market can accommodate all sorts of theories (fundamental, technical, price movements, etc.), which opens great opportunities for market participants, which followed the variation patterns and principles for trade. It is a matter of time - nothing to lose or win at any given moment. When carefully done, building a trading model that is based on the conceptualization of a clear strategy that makes it possible to reduce whopping trade and increase the number of trading profits, thus enabling a systematic approach to benefit.
As a general thought and flow processes, building a trading strategy can be summarized in the following steps, as shown in this picture:
Picture1
However, certain inputs may be needed for certain forex trading, and the following discussion:
Why the different forex trading
Theoretically, the forex price is said to move in accordance with the two basic concepts - interest rate parity and purchasing power parity. The significant difference between forex trading and forex market trading is global, 24/7 and regulatory moves are limited. This causes variations that are very sensitive, unpredictable and vulnerable in forex price movements. Major driver of forex price including for example news statement issued by the government officials, geo-political developments, inflation and other macro-economic figures, etc.
Let's discuss the steps to build a model of forex trading.
Identify / conceptualizing trading strategy:
Build models require trade matching opportunities, which in turn involves the selection of each of the strategies set out, or a new conceptualization as a standard variant. Trading strategy is the core of every model of trade, because clearly define the rules to be followed, the point of entry / exit, the potential benefits, the duration of trading, risk management criteria, etc. For example, here are two popular forex trading strategies:
News: Irrational forex markets often move because of the news releases involving such official figures (GDP figures, employment figures, non-farm payroll, etc.). Terljadi usual effect immediately after the news release is a high degree of volatility which led to significant price fluctuations. However, approximately 15 minutes after the news release, the prices are often observed to move back to the previous level, which is maintained just before the news release. The model can be built to take advantage of all these opportunities.Breakout daytime: the daily patterns prevailing in the candlestick, in which the high and low price range is currently in a high-low range of the previous day, indicating lower volatility. There are several patterns during the day, showing a continuous decline in volatility and therefore significantly increases the chances of a breakout. Forex traders build models and strategies based on this concept.Identifying security to trade forex:
Forex trading requires a special strategy of choice - the following options:
Asset - will trade only involves trading currency notes, futures or forex trading, forex options or exotic forex derivatives more advanced (such as barrier options)?Currency decent pair traded in accordance with the strategy that has been identified (such as EURUSD, JPYAUD, etc.)Forex Currency groups - major currencies, secondary and exotic - select currency pairs forex, because this category indicate special characteristicsPlug-in specific parameters for forex:
After trading strategies and identification of tradable security, the next step to build a model of forex trading forex strategy is to introduce certain parameters which include:
Dependence news: Unless a very long-term investors, there is no forex traders will ignore the development of geo-political news, economic conditions, macroeconomic data related announcement, etc. The trade model must have consideration for entering into the news impact of trade - in whole or in part, manual or automatic - fitting into forex trading models.Trading hours: Model forex trading must take into account the dependencies of time, if any, as follows: take a position before the announced macroeconomic figures, trading forex currency pairs that have more volatility during the hours off - for example, Australian traders who trade EURUSD at night Australia, trading exotic currencies that lasts only during business hours in the designated banks and OTC marketTechnical tools, fundamentals and monitoring requirements: If the chosen strategy requires constant monitoring or Bollinger bands chart DMA ®, or calculations based on figures elementary / macroeconomic, forex trading model to be equipped to cover all the necessary tools for these requirements.
Establish the purpose of trading:
This step is mainly concentrated to incorporate the following basic features into trade models, with different values ​​to find which one is best and suitable:
The rate of profit (such as the movement pips)Loss levelManagement Budget: How much money is at stake on each trade, with a style that is like what the (fixed amount per trade, or the amount varies with the progressive change)Risk management and scenario analysis consideration, as applicableSomeone might start with a few assumptions, and refine them repeatedly performed to find the best and profitable manner.
Back-test models:
Each trading model developed by an individual reflects the characteristics, the process of thought, temperament and experience of traders who develop or that individual. Because it is limited by the knowledge or even ego or blind belief in a personal model of development, important aspects are sometimes overlooked by traders. It is important to test the model on historical data, to identify errors and to avoid such losses in the real world trade. Backtesting also allows the necessary adjustments in the objectives that have been set (target profit, stop-loss, etc.) to further customize the models and strategies developed, ensure the practical realization of maximum profit potential.
Model aIternatif analysis:
Develop a model of trade requires patient analysis, which includes various iterations repeated changes to the parameters of mathematics, as well as variations in the underlying theoretical concepts. This cycle helps to record the failure and success of the case, so take note of what works and what does not, which is useful for many years, even throughout the trading career.
Using a computer to automate the trade and the establishment of the model:
Nowadays, the trend is to try to automate everything. But remember - "The program is as efficient as the basic concepts and practical implementation built into it."
Computers can be used to find patterns in historical data that can be the basis for the development of new models. Backtesting can also be aided by computer programs that run against historical data.
Application freely available or paid, or the trader can make your own customized to their needs based on their familiarity with the computer programming system. Be sure to use a computer program with a full understanding and application of strategies that you choose yourself, to avoid the pitfalls that later resulted in the loss of actual trades.
Conclusions:
One of the major advantages of using trading model is that it can eliminate emotional factors and mental barriers when trading, known as the main reason for the failure and the loss of trade. Meanwhile, it is always interesting to trade through a model with pre-defined and systematic. Wise traders are always looking for the possibility of failure and customize continuously for further success, based on market developments. Pragmatic approach, with continuous monitoring and improvement can help profitable opportunities through a model of trade.