What are the signs of a winning Forex strategies? Can simple forex trading strategies be profitable?
Some successful traders agree that the strategy must be simple. E.g. Raghee Horner (“ForeX Trading for Maximum Profit: The Best Kept Secret Off Wall Street”) and Courtney D. Smith (“How to make a living trading foreign exchange: a guaranteed income for life” our review).
If we accept simple Forex trading strategies, the logical consequence is that such strategies must have limited area of applicability. E.g. scalping strategy will most probably fail in trending markets. These limitations, however, aren’t a problem at all: all what we would need to know are just the limits within which the strategy works. With that, we can wait on the sidelines until we see them occur, and then enter the market and use the potential.
Strategy applicability is essentially about stable nature of the markets. This assumption can be treated as “insider information”. So, if we have enough evidence to conclude that a market is e.g. trending up, we can use loose stops and open a long position on every dip.
Furthermore, under this assumption a trading strategy can be optimized by design and testing. E.g. for trends, testing should cover trading algorithm capability of following trends of different shapes and strength without losing too much on pullbacks. In this case, the classic testing approach can be efficiently used.
Trading strategy simplicity also helps in the implementation, especially for automated trading. Trading software design is very important efficiency factor, especially for trading strategy study phase. Research assumes frequent changes, and doing them in the code often obscures the essential factors by programming routine and also increases chances of human error for that (unless you are a hard-core coder, of course). So only when the strategy is “cast in stone” after successful testing, does it make sense to program it. For the study phase, better approach is to design the software so that strategy description would be as clear as possible.
Convenient way to do that is using XML for trading strategy description. In this way, strategies can be constructed of small interchangeable “blocks”. This also makes it easier to make changes in the strategies and compare different strategies.
This approach is also much more efficient for simple Forex trading strategies.