my first thread in this forum, I’m happy to be here.
I learned a lot of the basics of forex trading in my first few months (big thanks to “School of Pipsology”). Of course I don’t have a forex strategy yet, it will take a long time. Nevertheless, I would like to write down questions that I have to answer when the time comes.
I didn’t fully understand the concept of a strategy. There is a “trading setup” and a “trading plan”.
In the trading setup I only define parameters for entering and exiting the trade - all clear!
But what about the trading plan? What exactly does it have to cover?
Of course, I looked at some strategies and noticed that strategies mostly aim at a certain scenario, a certain chart structure, which occurs once a week if you are unlucky. That can’t be a strategy, for example for day traders? Seems to simple to me.
Is it really the case that a strategy only targets a single scenario in the chart and is not traded at all the rest of the time? Or is the art then to pursue several strategies at once in order to have enough entry opportunities in the market?
Depending on the setup, I always use different indicator tools in demo trading that relate to the current market situation. Would that be a problem with a strategy because you have to determine beforehand which indicators can be used in your strategy?
Maybe you can tell that I’m totally lost on the subject. Would be great if we could explain to someone briefly what a strategy must contain and what is allowed and what is not allowed with a strategy? Perhaps some of you already have a list of questions to ask yourself when creating a strategy?
I hope I haven’t confused you too much with the question, I’m looking forward to your answers.
Lot of people sometimes confuse entry signal with set-up and with strategy. For example, a pin bar is an entry signal, its not a set-up or a strategy.
An entry signal occurs within a set-up and the combination suggest the important features of your strategy - capital risked, position size, leverage, stop-loss level, take profit level (if appropriate), pyramid or scale-out opportunities, stop-loss adjustment plans etc… Use indicators to confirm or evaluate your set-up, but not to signal entries.
A simple example for a trend-following strategy -
an uptrend is the basis of the set-up, confirmed by higher highs and higher lows, rising prices, duration, consistency, upward-sloping MA’s, MA’s stacked, maybe an off-chart indicator if you need it, etc.: the set-up is completed by a pull-back
an entry signal might be a hammer at the base of the pull-back
the strategy might then involve decisions on capital risked, position size etc. etc.: the exit signal or pattern or rationale is vastly more important than the entry pattern
Exactly think of them like tiers. Strategy is the umbrella for all aspects as @tommor mentions above. You kmight have different set ups within your over arching strategy, though I would stick to working on one at a time while you learn).
Learning the basics of when to enter and exit are at least in princpal, simple to learn. Adding those to a structured set up are a little harder to put together but throwing all aspects into the pot to form a strategy takes time. In order for the strategy to be effective you would need both the theory and execution for entries and exits to be on point, the set up to be correct and strictly adhered to, and finally risk management correctly implemented.
Added to those this would have to be the case over time too with lots of data collected.
