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Investing can be unpredictable and difficult. Especially when focusing on a lucrative, yet slippery market like Forex. To make smarter, more profitable investments, you are going to have to find effective Forex trading strategies that fit your goals.
Novice investors often jump into the fold before crafting a scalping strategy that will maximize their ROI. Don’t be that investor! Here are 3 tips to optimize your FOREX scalping trading strategies.
Understand the Risk You’re Willing to Accept
Most success-oriented people have a high tolerance for failure and aren’t risk-averse.
Those interested in investing sometimes read self-help books or inspirational quotes suggesting that failure is the stepping stone to success, or that failure is in some way connected to success.
The success/failure binary can be self-limiting.
Create parameters and safeguard yourself from any sort of downturn that will put a dent in your assets that you’re not comfortable with.
You must first understand and asses your investment risks before dipping your toes into the FOREX market, otherwise, you could wind up handicapping yourself and damaging your portfolio.
Curve-fitting builds illusory confidence in your test systems that ultimately cause you to fail in real scenarios.
Curve-fitting involves coming up with a mathematical function that predicts a data set. Any theoretical data set can be deemed predictable through such a mathematical function, which lulls you into a sense of security.
Because your function predicts with utmost certainty, you may fall into the trap of thinking this is an iron-clad strategy.
However, curve-fitting relies on past data to come up with the mathematical functions, so the “certainty” you feel does not apply to present or future trends.
For example, let’s say there is a data set of 3, 6, 9, and 12. It seems like the next data point would be 15, right? Perhaps, but it could be 19, 31, 58, etc. Curve-fitting fits the brain’s desire to find patterns in seemingly random numbers when the numbers are just that: random.
Avoid curve-fitting and focus on mathematical algorithms that help you deal with the uncertainty of Forex trading, rather than the certainty.
Stay Away from Unrealistic Simulations
Again, this tip deals with the demo and pre-planning phase, but it is a helpful reminder nonetheless.
Always be sure that the simulations you run are similar to ones occurring in real-life. This sounds obvious, but it is easy to let our brains trick us into thinking our simulations are more real than they are because unrealistic simulations are more understandable than real ones. As with tip #2, predictability, though comforting, ultimately degrades Forex trading decisions.
If you are a developer, tweak your EA or other robot systems to adhere to real Forex simulations. If you are someone starting the Forex trading game, find software that mimics real trading fluctuations as much as possible.
It will take a while to find the proper scalping strategy that works for you. Once you do, you will find the entire Forex trading process much easier to grasp and be able to create profitable trades.