If you want to maximize your forex trading strategy to get maximum effectiveness; it is important that you develop a system and process to evaluate your performance. I will outline the exact steps I use to help me improve the performance of my strategy optimization techniques. The article will cover the design, testing, and optimization of forex systems Step 1 Outline your Forex Trading Strategy Entry Factory Before you start changing the guidelines of your strategy, you must know if the forex trading strategy that you are currently using works. Therefore it is important to have clear guidelines and steps so that you know how to measure your trading performance. My Forex Trading Strategy Rules: The aim is to get into a trade and let the trade momentum push the price action of the trade into a larger target than my average loss. It is also important to determine the chart time frame you will be trading on, and for me, I am going to be using a minute trading strategy. Since I am going to be testing a new forex trading strategy, I want to have goals in place before trading starts, in this trial my goals that I have set is the following:. A risk to reward ratio of 1: The risk to reward is important to me because I know I can make profits in the market if I can find trades where my winners will be twice as large as the losing trades. Maintain discipline follow the plan. Another reason is that the market goes up and down and I know that I cannot be guaranteed to hit specific goals like that each day I must take only what the market gives. When I get a green or orange arrow that tells me a trade could be ready to enter and that I need to pull up the chart. The key here is to not just enter on the signal but to wait until it is pushing up into a resistance level, this is done to ensure that I can get the most amount of profit on my trades. Doing this enables me to have a tight stop loss, and my goal is less than ten pips. Waiting for the best entry also gives me the ability to find excellent follow through trades. Where sometimes I can have a ten pip stop loss and end up hitting a 50, 60 or 70 pip trade which would be a forex to one; and that is way better than the 1 to 2 risk to reward ratio. It is important not to just enter on the signal but to wait until it is pushing up into a resistance level, this is done to ensure that I can get the most amount of profit on my trades. Strategy Stop Loss Placement: If we look up at the image above the orange levels would be the entry, and I place my stop ten pips below that. I put my goal at 20 pips initially, but if I get price action that indicates a strong push, then I will lower it to key trading price levels such as the 00 the 50 the 20 and Those are critical levels that price many times will see slowdowns and reversals. Now that I have all of my goals and rules in place next I will take a block of trades 20 or more so that you can analyze the effectiveness of the strategy. Taking a sample of trades with my forex trading strategy will not only measure the efficiency of the strategy but also how well you as a trader execute the strategy and trade it. Once you take the trades, make sure you log everything with detailed information so you can evaluate. I recently finished a block of trades using the strategy I detailed above the next part is to analyze the results of the trading period examined. So again I did not accomplish my goal of 2 to 1 however 1. Goal 3 was to follow the rules which I did not accomplish that objective either! I made some bad trades and stupid decisions. Despite failing at all three goals, I still made some profits, not bad! If I can keep working on this, I should be able to make some great profits with this strategy with a few small changes. After reviewing my results for the week then I will go ahead and make a trade by trade breakdown. Here is some more trade data below that we can use to see areas of improvement. Best am noticing that despite not achieving the trading objectives, I did make a profit and I had a positive risk to reward ratio. I did not hit the 2 to 1 that was on my goals, so I know I need to make an effort to improve that in my next block of trades. One good thing in my review was my goal was to have trades less than ten pips for my losers, and I achieved that goal!!! At least I did one thing right. One step at a time. If you improve one step at a time before you know it, you will be doing some super fine forex trading strategy techniques. Factory believe that you will be able to accomplish it so keep me posted. Looking into the individual trades will reveal some significant trading optimizations that can improve trading results, there is going to be a treasure of information that will help me develop the most accurate forex strategy that I can possibly have. Reviewing losing trades will help you find your errors and fix them. Most traders ignore the losers. Therefore, they never improve. I also went long on a bounce but again based on my strategy the entry should forex near the pullback into support instead of the bounce. Look at the image and see the orange box which is a critical support level near the red moving average. In review, I could have gotten a tighter spread at. If this was a winning trade instead of loser that would totally have increased my performance for the week. Turning one loser into a winner by proper execution is huge. Next week I need to make a note to ensure that I make my entries at a better location so I can win more trades. Next, we will review a terrible trade! Wow, what did I think when I did this one. As I said in my first trading mistake was I got in at the top instead of waiting for a pullback. By Examining my trades in this forex trading strategy evaluation, we can see a theme. Two of my losers were because of failure to follow proper entry guidelines. There are more things wrong with this trade lets keep looking. Mistake 2 Optimize Trading Strategy The second mistake here is an unforgivable sin of trading. Ok, I forgive myself factory I need to stop making this error, and that is I allowed trade with a goal of 10 pips to become a loser of 32 pips! Allowing losing trades to run is a huge error. Think about this for just a minute if I made profits last week how much better will I do the following week if I can avoid this in the future. Looking at losing trades is painful to do, but the effort will yield massive results. Please take the time to review your trading each day. I try strategy do this after every block of 20 trades, to be aware of my trading errors and therefore being able to improve them; you cannot improve if you do not have an awareness of your trading mistakes. I am going to only show you one more trade here because strategy time and strategy of this article, but I do this for all of my trades, and I recommend you do the same thing if you want to become a great trader. We can see the difference in our results if I execute and get a pullback entry instead of a forex trading strategy entry at the bottom of a move you have a much higher chance of winning the trade. The next thing is you notice I was able to allow the position to run for a total of 32 pips gain. Letting your trades run for larger targets is another huge trading advantage because with a ten pip stop that is a 3 to one risk to reward ratio. The only thing I could have improved on with this trade is to allow it to run, had I done that I could have possibly pulled out 60 or 70 pips on this trade. The more I can let my winners run the more profitable my forex trading strategy becomes in the long term. So now I am going to work on these three things for next week and then trade another block of 20 trades and see if I can execute better. This method is an excellent way to improve your trading if you learn how to optimize your strategy using the evaluation process. Most traders will not take the time to do this, and that is one of the reasons they do not improve. I am new in this industry, so my question is: Is the method you discussed is the easiest way to understand the pros and cons in Forex? Also, will it help me earn in applying the said method? Thank you in advance. Thanks Casey, your answers were helpful. But your mentioning this now made it look as if a light bulb was just put on in my head. I will let you know how I am doing afterwards. I do not wait I enter at the support, however since this article is more about optimization of a strategy than a strategy you just pick one and test it as I suggested best this article. Same as above, you must decide the strategy questions for yourself, Test it and see if it works. Benson I recommend that you write your strategy down and answer all of these questions for yourself. Then take the block of 20 trades and see how it works for you. Use very good risk management on these 20 trades. One option would be to close half of the position and let the other half run or stop out, but again make a decision and then test the results. Come back here and let us know of how it works. Thanks for the comment I hope this is helpful and making your strategy better will help you learn how to be a better trader and of course if you need any help please come on here and leave a comment. Hello Casey, I took my time to study your article very well before dropping a comment. Now I have some questions that I will like you to help me with. What do I do in that situation, should I just leave it or still enter. This situation always make me regret not taking my profit when I had the chance, because most times, such trades are usually with huge lot size. So how do I handle this situation? Hi Casey are you doing it live this week? Trading forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Home Blog Tools Pricing BROKER About Us Were Hiring Contact Us! Forex Trading Strategy Evaluation Methods Written by casey on March 25, 12 Comments. Forex Trading Strategy Evaluation Methods If you want to best your forex trading strategy to get maximum effectiveness; it is important that you develop a system and process to evaluate your performance. For My Forex Trading Strategy Since I am going to be testing a new forex trading strategy, I want to have goals in place before trading starts, in this trial my goals that I have set is the following: Maintain a stop loss of 10 pips or less. Forex Trading Strategy Entry Requirements. Add the Strike 3. Identify trade and ensure that I am trading within the daily trend. Find the optimized trading strategy entry. Plan targets and stop losses. Image of Forex Trading Strategy Rules: Next, I will do the analysis and make sure that it is within the trend see image below. Forex Target Strategy Rules: The evaluation and optimization of trading strategies. I took a total of 27 trades during that time, so I have enough data to do my analysis. Trading Forex Trading Data Discovered After Analysis: Including taking a trade while driving to work. Not a good idea! Forex Trading Strategy Trade Evaluation and Review: Pay more attention to your losing trades than your winning ones. Executing the trade according to the strategy would have saved me 5. Also, this pair has a large spread of 1. I should be trading pairs with a smaller range. Accurate Trading Strategy Mistake 1 As I said in my first trading mistake was I got in at the top instead of waiting for a pullback. Take a look at the image. Action Steps from the Optimize Trading Strategy Process. Make sure that I continue to maximize my profits by making sure that my forex trading strategy entries are on a pullback which will give me the most accurate trading strategy that I can have. Do not under any circumstances allow my trades to run to lose 30 pips on a trade that is too many for this type of strategy. Make sure that I only trade pairs that have a spread of less than one pip, because with my forex trading scalping strategy I need to have the best spreads so that I can win more trades. Summary of the Forex Trading Strategy Evaluation Methods Process This method is an excellent way to improve your trading if you learn how to optimize your strategy using the evaluation process. The following two tabs change content below. Casey Stubbs is the founder of Winners Edge Trading, which is one of the most widely read forex sites on the web. Winners Edge Trading has trained thousands of people to trade the Forex markets. Latest posts by casey see all. Sure just keep reading this blog for tips and ask questions in the comments. Your welcome if you have any trading questions please let me know. Thanks Benson looking forward to seeing your success! I will answer your questions by numbering them. Popular Views Hot Off The Press Most Commented Popular Long Term Trading Strategy for Forex NFP Trading in Forex and a strategy for trading Creating a Forex Trading System: Success Tips How to Use Currency Strength for Trading Success A Simple Yet Profitable Strategy Maximize Profits and Minimize Risk--What a JOKE! Long Term Trading Strategy for Forex Creating a Forex Trading System: Success Tips Forex Trading: A Tool to Create Wealth Trading Mindset Training: The Battle of The Brain How To Trade The Fractal Indicator How to Use Currency Strength for Trading Success Realistic Forex Income Goals for Trading The 10 Best Indicator Combinations in Forex Trading Long Term Trading Strategy for Forex. 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