How to Improve Your Trading Probabilities

The game of forex trading is a lot about expectancy. Unless you have positive expectancy overall, you cannot hope to make any money, and expectancy, at the end of the day, comes down to probabilities.

Successful trading strategies do not need to win all the time. Indeed, many trading strategies are able to make money by winning just 20% or 30% of their trades. Increasing the win to loss ratio is always a good thing to work towards, though, and here are some things traders do to increase their probabilities.

Increase your time frame

Short-term time frames such as 1-minute, 5-minute or 15-minute charts are notoriously hard to predict and are mostly the ground for HFT bots and losing amateurs. It’s much easier to trade longer term markets. From an hourly chart up all the way up to a weekly chart, probabilities generally improve as the time frame increases.

Avoid quiet markets

Quiet markets, like after the US session has closed or when there is a public holiday, can be difficult to trade. Traders need significant volatility in order to overcome the cost of commissions and spreads. Furthermore, quiet markets often lead to erroneous signals from indicators. It’s much better to reserve trading for when you know there will significant price action and that will lead to higher probability trades overall.

Concentrate on just one market

If you can concentrate on just one market, your trading probabilities are likely to improve over time. Focusing on just one forex pair means you get to know its patterns and feel like you know it inside out. That helps make more consistent winning trades.

Trade with the trend

Most traders realize that trading against the trend is a losing strategy in the long run. If you trade against the trend, you are generally going to lose a lot more times than you win. You may eventually hit a big winning trade that way but it’s still better to go with the trend.

Build a system

If you want to improve your trading probabilities, the first thing to do is to work out exactly what your current probabilities are. That means recording your trades and working it out. Likewise, by building a trading system, you can test your strategy on past data and see what your historical probabilities are. Then, you can try all sorts of different ideas and see if any of them improve your overall expectancy.

Create filters

Another way to improve your trading probabilities is to create filters so that you only trade when certain conditions line up. In this way, you can avoid times that are bad for your strategy and only trade during the most favorable conditions. Creating confirmation signals from other technical indicators can also help to increase your overall probabilities.

What do you do to increase your trading probabilities? Let us know in the comments below.