Creating a forex trading strategy on the example of candlestick patterns

The trading system of the trader is an important component of a successful and, most importantly, stable work in the financial market. That is why this issue is given close attention at the initial stage of learning exchange trading. The trading system is an automatism brought together a set of necessary rules formulated by the trader, with the help of which real currency assets are traded in the future.

Trading signals that can be used to build a Candlestick Patterns Strategy

  1. The signal to open a buy deal is the formation of a bullish candlestick pattern (but not against a downtrend). The signal to close a buy deal is the formation of a bearish reversal pattern.
  2. The signal to open a sell transaction is the formation of a bearish candlestick pattern (but not against an uptrend). The signal to close the sale is a bull reversal pattern.
  3. If a reversal bull model is formed, but the level from above interferes, then until it breaks through, we do not open a deal to buy. Similarly, if a reversal bearish pattern is formed, but the level of support from the bottom interferes, then we will not open a deal either.
  4. Against a downtrend, you can only open a deal for the purchase of the following bull models – clearance in the clouds, the base of the tower, three inverted Buddha.
  5. Against the uptrend, you can open a deal for sale only by the following bearish models – a veil of dark clouds, an evening star, the top of a tower, and three Buddhas.
  6. When opening a purchase order, a stop-loss order is set 10 points below the bull pattern.
  7. When a trade is opened, the stop loss order is set 10 points above the bearish model.
  8. If a buy trade is opened and a reversal bearish model appears on the chart, but the support level (or support line) located directly below it may well prevent the price from moving down, don’t hurry to close the deal. It would be reasonable to move the stop loss above (under this level or support line). Conversely, if a sell deal is opened and a reversal bull model appears on the chart, but the resistance level (or resistance line) located directly above it may well prevent the price from moving upwards, then again we are not in a hurry to close the deal. You just need to move the stop loss below (set it above this level or line of resistance).

Sometimes Forex trading strategy of one trader, quite effective and tested on the market, is unprofitable for another user. To avoid such negative phenomena, a number of significant individual requirements are imposed on trading systems at the design stage, based on which it is possible to speak about the effectiveness of the trading strategies obtained.

First of all, we are talking about a positive expectation of the average profit from each transaction made, taking into account all commission costs. At the first stage of testing the system, the average total result of all completed transactions (together with unprofitable ones) is summarized. If according to the results of a certain period of work, for example – for a month, the overall balance is negative, then you should not continue to work in this direction. This means that the algorithm of the system is incorrect, and it is better to proceed to the development of another module.

Profitable Forex strategy is

An important quality of a profitable Forex strategy is risk control or loss minimization. In relation to the trading system of the trader, the concept of portfolio diversification is used, namely, trading in various markets with all kinds of tools at the same time. Separately, foreign exchange markets are not used for diversification, since strongly correlate (interact) with each other. Although within the framework of Forex trading, it is reasonable to divide one lot into different currency pairs, of course, if trading on these instruments is confirmed by trading signals.