FOREX TERMS: Step by Step, backtest, forecast, and others
Entering the forex trading market involves a lot of commitment and strategic planning. Without this, you might find yourself struggling to make progress in this field. If you’re new to forex trading, or you’ve found yourself stuck in your trading process, then you need to find a proven strategy.
One of the ways you can improve as a trader and get great results is through backtesting. Backtesting is a great way to master your skills as a trader, gain self-confidence and test the profitability of a strategy.
A trading plan can only be created when you have done enough backtesting and gathered the necessary data. Before all of this, you will need to do an advance self review (ASR). This means that all the data you collected will be added in your journal to show you exactly what works and what doesn’t. There are some particular things every trading plan must have, that is:
- Market terms
- Trade management
Without these, your trading plan is not considered complete. In detail, a checklist is a number of questions that must be answered before a trade executes. A checklist is a must-have if your plans are long-term consistency because without it, you’ll be trading blind. The complete requirements for your trade have to be written down before the trade even begins.
Forecasting is also an essential part of trading; it prepares you for the different situations you may or may not meet as you trade. The best way to do it is to set out time twice a day, preferably once in the morning and once in the evening, for better organization.
Once you’re done with backtesting, creating a detailed plan, and gathering data, you have to begin the demo account. Recording your trades is an essential part of trading. You’ll add every single entry that you take in your journal. This can help you to keep track of your mistakes and help you succeed easily. Once you’ve done this, you’ll be prepared for funded capital.
Backtesting involves simulating a trading strategy with the use of past collated data. To become a successful trader, you need to perform backtests every day for an hour at least. Many traders belittle the importance of having an organized backtest, but it is highly useful. Backtesting is usually complicated, which is why many traders do not backtest or keep the data from their backtesting sessions.
Backtesting doesn’t have to be challenging, you can use hybrid Fx trade journal it is created in Microsoft Excel to do all the numbers problems for you. All you have to do is insert your trade data like an entry price and add the exit price. The Spreadsheet will automatically calculate the figures for you so that you can use the sheet for future comparisons.
Backtesting requires a lot of patience, but you have to go through the charts properly, do less backtesting but do it properly. Consistency is key in performing backtesting. To optimize your backtesting sessions, it’s best to select a certain hour of the day when you’ll focus on backtesting. This will help you to monitor your trade plans and find what works perfectly for you.
Forecasting in forex trading involves making predictions about what could happen so we can prepare. Forecasting should be done at least twice every day, in the morning and night. On the weekends, you can do the forecast only once. Higher and lower timeframes should be analyzed during the weekends in preparation for the coming week.
Forecasting in the morning
Before you go about your daily routines, spend at least 30 minutes checking the forecast. We all have things to do during the day, so doing your forecast early in the morning is a great way to choose the pairs you think will have entry. If you find potential pairs, put them on a watchlist, so the rest of your day can be organized.
Forecasting in the evening
In the evenings, we can catch up on the charts and check out the forecast before you go to sleep. If there’s a potential entry, this would be a great time to wait for it.
Advance Self-review is a way to extract data during backtesting, it shows you the rate of success of specific trades. When the data from the backtesting is gathered, you have to take note of the pattern that repeats itself more and check to see if the percentage has a high success potential. Only patterns with a high success rate should be added to the trade plan. Whatever’s not performing properly should be removed.
As you perform ASR, all the data you got during your backtesting, should be recorded in a journal. A perfectly arranged chart is needed to spread all the variety of entries you’ll find. This will help determine their success rate easily. ASR is not so hard thanks to the hybrid Fx backtesting spreadsheet, which calculates the data automatically.
A trading plan is the most important part of forex, it controls your moves and guides you on how to trade in the market. Once you begin trading, you should follow the plan thoroughly, until you reach your preset goals. No reasonable trader should be starting a live trade without a trading plan. It doesn’t matter how much knowledge you have of the market, trading without a plan is a big mistake that can bring failure.
When you trade without a trading plan, it is called blind trading, it can as well be called gambling! A trading plan helps you to trade without emotions or hindrance. Many traders struggle with managing their emotions and what size of SL they’ll put on their trade, and that’s normal. It becomes a problem when you allow it to affect your trade process.
A trade plan shouldn’t be used for more than a few months because the forex market changes fast. You’ll always find changes if you compare a plan from a month ago to a new one. That’s why it is advisable to always revisit your trade plan and make necessary changes.
What should be in a trade plan?
A trading plan must have very clear entry criteria and a checklist written particularly for a specific currency pair.
A trading plan must have risk management. You must identify the greatest risk your plan might face during a particular time. This will help you manage and avoid it.
What should a trading plan look like?
A trading plan should always look simple but detailed enough to be effective. There’s no need to make a complicated trading plan, as long as it is effective. You have to be sure of the plan’s effectiveness while you do your backtesting. This will help you to make informed decisions backed with logic, not emotions, while you trade. You’ll have a more productive trading session if you follow the plan without letting emotions get in the way.
Keeping straight tabs on your trades helps you to avoid mistakes and teaches you what will be successful. A journal is the best way to follow up or track live trades as you do them. To become a successful trader, you must keep a journal and record your trading strategies and style.
Any information that would eventually help you trade better can be recorded in your journal. From trading plans, trading rules, and trading goals to market conditions, all of these can be recorded in your journal. A forex journal helps you to track your trading activities and keeps you organized. It’s a great way to gain extra insight into your trading patterns.
A trading journal must be neat and organized in a way that you can skin through and easily find what you’re looking for. It is advisable to record trades in your journal the same day they happen so that you don’t forget the details. If there were emotions that tried to hinder your trading decisions, recording them immediately will help you avoid them in future trading sessions.
Why keep a trading journal?
- To identify the weak points in your trading strategy
- To help boost your trading consistency
- To keep you in check and build your accountability
- To help you select your best strategies
How to create a Journal
Your journal should be tailored to your trading style and your trading goals. It’s not so difficult to create one. The first step is to select a spreadsheet and determine the kind of information you’ll want to record. The common information recorded in a journal includes:
- The date of the trade
- Your emotions for trading on that specific day
- Your market views
- Your position size
- Any underlying or hidden asset
- Any market observations
Your missed opportunities and the ones you grabbed
All trades should be recorded after you’ve taken your profit and placed your stop loss. You can go back to reflect on the journal at the end of every week or month. Some people prefer to check their journals daily. It’s important to find a personal flow when you trade, to understand what works for you. Your trading journal must contain; the reason for the trade, your convictions, and any other thing you took note of during your live trading session. Journals should be written at the beginning of the trade and the end of it.
There are many trading journal templates you can use to create your own. Your trading community should have a few to share with you as you dive deeper into trading. It’s important that you find a journaling method that suits your style.