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Creating Your Forex Trading Strategy Playbook

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If you aspire to trade for a living, one day you’ll find yourself having multiple trading strategies or trading styles.

The fact is that no single trading strategy can be used at all time. In fact, it is frequent for professional Forex traders to switch between strategies or to replace the ones underperforming.

Personally, I’ve been starting in Forex as a swing trader. After I got consistent with it (which wasn’t an easy job, let me remind you), I started to dive into day trading (both the New York and Tokyo sessions). That brought me to use more than one way to trade.

The thing I want to point out, however, is that having a Forex trading strategy playbook doesn’t mean you should accumulate as many trading strategies as possible in the hope to make more money. In reality, trading too many things usually has for effect to reduce your overall return.

In addition, do not be surprised if you do not make money from the start with a strategy you just started to trade live. There is a period of adaptation.

However, as you start to expand your trading strategies, staying organized becomes crucial. You absolutely need to keep things in order. Your playbook should be focused on clarity and must be visible.

I like to think of it this way…

 

Aircraft Checklist

 

So your Forex trading strategy playbook, in short, will contain what you’re allowed to trade. That is, what you’ve tested and are comfortable with.

This is your recipe book to get what you want out the market.

I really want to point out the fact that a trading playbook is also like the user guide of a product. If you aren’t confident that what’s inside works, it shouldn’t be there. Period.

If you have been learning all sorts of things about technical trading and feel you start to get a grasp of the technical analysis concepts, then your #1 priority is creating your Forex trading strategy playbook. That holds true even if you are going to trade 1 single thing. You better start earlier than too late!

 

Creating Your Forex Trading Strategy Playbook

This article will describe the few steps to ensure you have a strong Forex trading strategy playbook. Then, I’ll show you what to put inside your playbook.

 

Step 1: Having an idea about the market

Most people, whether experienced in trading or moderately knowledgeable have no problem with this step. You simply need to think about how the market moves, and how you could expect to make profit from it. That’s trading at its most basic.

In this step, you’ll also identify the types of tools you intend to use (indicators, pattern types, chart types, etc.).

For the sake of demonstration, consider this example:

  • The Forex market is well-known for its trends. It turns out that moving averages can help you identify a trend. If you are able to spot an existing trend, then you could find a support/resistance zone to enter the market in the direction of the trend.

As a side note, the strategy I mention is available here: Forex Trading Strategy for Trending Markets

 

Step 2: Getting detailed on the tools

The tricky part with indicators is that you can modify the parameters at any time. That allows you to make a certain indicator fit your needs, but it also makes it tougher to earn consistent returns.

As early as possible, you should define the parameters you are going to use. Then, stick to them.

In the case of a moving average, for instance, you’d say: “alright, so I’ll use the 200 and 20 EMA as my indicators to figure out the current trend.”

Side note: I prefer using the 20 & 50 EMAs.

But, this doesn’t apply only to indicators!

Here is a mistake many traders make: they’ll define indicators parameters while forgetting that indicators are far from being their main tools.

What about price action?

If you are going to use reversal candlestick patterns, decide which ones you are going to consider “strong”, “medium”, and “weak”.

Even then, you’ll see that traders have different definitions of say, an Engulfing patterns. On my side, I see strong Bullish Engulfing Patterns as a covering the previous candlestick’s body while also closing above its high.

That’s slightly different from Steve Nison’s classic definition (affiliate link to a great book).

So you want to be as clear as you can here.

 

Step 3: Defining the circumstances required

When I say trading strategies shouldn’t be used in any situation blindly, that’s what you should think about a bit more than most traders do.

In fact, a day trading strategy normally can’t be transferred without any modifications or new rules to a longer-term time frame, and vice-versa. The circumstance/environment isn’t the same.

If you are going to create a trading strategy, you might as well define the circumstances in which you are going to apply it.

For instance:

  • Are you going to day trade, swing trade, or position trade with it?
  • Are you going to use the strategy in sideways or trending markets?
  • What strength of trend are you looking for?
  • How wide/long should the sideways range be?

Now, let me point out that you do not need to have a precise answer for all the bullets above, but you should have an idea. For instance, it would be stupid to trade sideways moves in a tiny consolidation.

You can add other factors as well (as long as it makes sense with your trading strategy).

 

Step 4: Putting everything on paper

I just want to make sure that the things you went through in the previous 3 steps do not stay only in your mind…

You should write everything down.

Up to you to decide if you want to write everything on your computer or by hand. To simplify your life, think about using the One-Page Trading Plan Template that I offer for free on this blog.

 

Download the One-Page Trading Plan

 

Step 5: Putting Together a Forex Trading Strategy Playbook

If you do not do this, you’re in trouble…

From the number of people who downloaded the One-Page Trading Plan on my site so far, I can tell that the intentions are there. You surely want to be organized.

However, what separates confused traders from traders with extreme clarity comes down to how they put everything together and stay organized.

The point of this step is to ensure that your trading plays are actually stored in a single location.

I’d recommend inserting all of your individual strategy trading plans into a binder.

You can classify them in many ways. For instance, you could have a section for your New York session strategies and another one for your swing trading trend plays.

 

Step 6: Review To Make Your Playbook An Execution Habit

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This last step is critical.

You’ll want to review your whole playbook to memorize it. The goal is to make executing on the proper strategy with the proper elements a habit. You shouldn’t have to think.

Habits are powerful…

When you start to evaluate your trading a bit, you’ll realize that some of the mistakes you make are based on things you wrote on your trading plan, but that you actually forgot. I used to really struggle with that.

I would, for instance, forget to look at upcoming news releases prior to entering a trade. I’d get stopped out very quickly. Most of the time price would go in the direction I expected, but the volatile reaction to the news would stop me out. That was frustrating.

 

How to make right execution a habit

If you can master implementing a new habit in your trading, especially when talking about a habit linked to your Forex trading strategy playbook, you’ll begin to see results (returns) that are much more consistent.

Here are a couple of ways:

1) Repeated exposure

Obviously, the more you get exposed to something, the more you remember. I’ve reviewed my trading checklist so many times that I know it by heart now. I don’t even have to use it. A lot of research has been done on that topic.

2) Test yourself

If you can begin to set up quizzes for yourself, you’ll begin to see an decrease in the time it takes for you to remember things. That’s backed up by the American Psychological Association and I experienced it myself.

3) Teach others

That’s probably the best way to learn something and (even) remember it forever. I’ve said 1,000 times in my videos “stop loss below the candlestick that broke out of the range” that I not only know where to place my stop loss for a breakout trade…I do it automatically.

Those are the main 3 ways that wok for me, but I recommend you take a look at How to Study Smart: 20 Scientific Ways to Learn Faster for multiple other ways to learn.

 

Your Forex Trading Strategy Playbook

Don’t expect to sit down and complete your Forex trading strategy playbook in an hour. That might happen, but if you’ve never structured your trading this way, you’ll need to put down your trading strategies on paper, and then to ensure they’re working. Coming up with a final playbook, however, will serve you immensely.

 

Wait…What’s Missing Here

If trading were that easy, highly organized people would be world-class traders. However, I didn’t take into account emotions, beliefs, and various psychological states that would be present when you trade. Those will affect how you execute your plan and whether you do the right thing vs. the emotional thing. We focus a lot on that in the DesireToTRADE Academy.

Nevertheless, I strongly believe that structuring your trading with a Forex trading strategy playbook can be hugely beneficial to you. It would represent the first step to becoming better.

 

Your Turn

Do you currently have a Forex trading strategy playbook? What does it look like? Comment below or post a picture of your playbook in the Facebook group so we can talk about it!