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The great advantage with markets is that it accommodates all sorts of theories fundamental , technical , price action , etc. When carefully done, building a trading model based on a clearly conceptualized strategy allows reducing the losing trades and improving on the number of winning trades, thereby enabling a systematic approach to profit. As a general thought and process flow, building a trading strategy can be captured within the following steps, as demonstrated in this figure:.
However, a few specific inputs may be needed for forex specific trading, which are discussed below. Building a trading model requires identifying suitable opportunities, which in turn involves choosing any defined strategies, or conceptualizing new ones as variants of standard ones.
This step primarily concentrates upon incorporating the following basic features into the trading model, with varying values to find the best fit:. One may start with a few assumptions, and fine-tune those as more iterative tests are conducted to find the best profitable fit.
Any trading model which is developed by an individual reflects the characteristics, thought process, temperament and experience of the trader who builds it. Often constrained by knowledge or even personal challenges of ego or blind belief in self developed models, important aspects are occasionally overlooked by the traders.
It hence becomes important to test the model on historical data, to identify the errors and avoid such losses in real world trading.
Backtesting also allows required customization within the set objectives profit targets, stop-losses, etc. Developing a trading model requires patient analysis, which includes numerous iterations by repetitive changes to mathematical parameters, as well as variations in underlying theoretical concepts.
Today, it's trendy to attempt to automate everything. But remember - "The program is as efficient as the underlying concepts and the practical implementation built in it. Computers can be used to search for patterns in historical data which can form the basis of developing new models.
Back testing can also be aided by computer programs being run against historical data. One can either use the available applications on trial or purchase basis, or build new ones on their own for their requirements based on their familiarity with computer programming. Be sure to use the computer programs with a full understanding and applicability to your own selected strategies, to avoid any pitfalls later with real money trading.
One major advantage of using trading models is that it takes away the emotional attachments and mental roadblocks while trading, which are known to be the major reasons for trade failures and losses. A pragmatic approach, with continuous monitoring and improvements can help profitable opportunities through trading models. Experience MT4 at its best with reliability, integrated insights and account management features.
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