Evaluating Forex Strategies

Forex strategies

In the very early stages of your career you will be more comfortable using second hand forex strategies, which basically means that you will not have devised your own strategies and instead would acquire them from others. There are many expert forex traders on the internet that offer their own strategies through coaching and direct sales to new traders.

Moreover, you can even choose to run with the strategies that were taught to you during your forex training. Regardless of which option you take up, you have to be able to evaluate forex strategies to make the right choice. For this reason, consider this small primer.

Suitability to Your Personality

You must always remember that just because a strategy is working for one trader does not mean that it will work for you as well. Forex strategies are designed to fit different personalities which is why you will have to assess your own personality and then consider which strategies match your individual characteristics.

This is important because it will make you comfortable with your strategies. If you are not in your comfort zone while trading then you will not be able to make a lot of money in the forex market.

Historical Profits

While there are good forex strategies in the forex market, there are also many duds that you will find make big claims but will not be able to back them up. This is why you should never accept claims blindly. You should look into the records of the specific strategies with the intention of verifying the claims of its marketers.

Maximum Drawdown Records

There are different forex strategies for different account sizes. A strategy suited for a big account will not suit your small account and vice versa mainly because its drawdowns will be different.

For instance, if the drawdown of a strategy is large and your account is small then you will either get stopped out often or have a margin call against your account if you use that strategy.

Ratio of Wins to Losses

Just checking historical profits of forex strategies is not enough because the ratio of wins to losses also matters. This would largely show you the success rates of the strategies that you are considering. The higher the success rate of the strategy the better it will be for you.

Ratio of Profits to Losses

While the success rate is important, it can be misleading. For example, the strategy may have 90 successful trades of one American dollar profit each and 10 losses worth 10 American dollars each.

This would cause you to lose money in the long run even though your success rate is high. This is why you must also check the ratio of profits to losses of all forex strategies before making a decision on them.

Modification Potential

You must assume that sooner or later you will become better at forex trading and will need greater profits while choosing forex strategies. If you take this into account then you will also end up assessing the modification potential of the strategies you are considering.

 

 

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