In this article we will look at the basics of a successful currency trading system. We look at factors to consider when building one yourself or if you plan to buy a ready made currency trading system from a vendor.
You can incorporate a good currency trading system into your forex trading strategy and enjoy currency trading success.
In the section best currency trading system we will look at what separates the best trading systems from the losing majority - but let’s review the basics you need to consider first.
Time Span
First you need to decide what timescale you wish to trade over.
Do you want to long term trend follow, swing trade in forex or use a forex day trading system?
This is really a matter of choice, except in forex day trading. Forex day trading systems don’t and will never enjoy long term success, so don’t be tempted to try one, as all short term volatility is random and no day trading system will work.
If you are a patient trader then long term trend following would be a good choice - but you need to be very disciplined and accept short term drawdowns in open equity against you.
If you are not so disciplined, then swing trading in currency is a good choice.
These trading systems trade more frequently, there is plenty of action and profits and losses are banked quickly.
Responding To Market Action
Never be tempted to buy a forex trading system or base it on the logic of predicting where price action will go – it won’t work.
Why?
Because prediction is another word for hoping or guessing and that won’t make you money in life generally and certainly not currency trading.
There are a lot of currency traders who sell the myth that you can predict market movements in advance. Such as systems based on Fibonacci, W D Gann and Elliot Wave theory and none of them work and the reason is obvious:
If FX markets could be predicted with scientific accuracy, then we would all know the price in advance and there would be no market! This is common sense - leave the scientific theories to the dreamers and far out investment community and concentrate on trading the reality of price change.
If a currency trading system trades the reality of price change, it’s trading facts not guessing or hoping and will have a much better chance of success.
Always keep in mind that forex trading is a game of odds - not certainties.
Track Records & Back Testing
There is a huge market in currency trading systems on the net and most don’t have a real track record. They do however have a simulated track record done in hindsight which means that vendors can present any track record they like and they do.
You often see track records with extra ordinary track records in back testing which totally fail in real time trading.
If you are buying a currency trading system, its best to stick with one that has a real time track record - with audited account statements. After all, if the vendor does not have the confidence to trade it why should you?
If you are building your own trading system, then you also need to make sure you don’t “curve fit” it.
Curve fitting is simply bending the system to fit the data.
One trader I know likened this to shooting at a barn door blindly and then drawing a bulls-eye around each and everyone AFTERWARDS!
Its temping to curve fit, to make your system perfect and the best way to avoid it is use a long segment of data, don’t use too many rules and trade every currency in the same way.
Many forex traders create unique rules, for currencies and different markets but logic tells you as no two segments of data will ever repeat this is doomed to failure.
Keep your system simple and it will be more robust in real trading and more likely to succeed – add to much curve fitting and bending your system to fit the data and it will break.
Discipline Comes From Understanding
If you build your own trading system or follow a ready made one you must understand and have confidence in the logic, to follow the system and execute your trading signal with discipline.
If you don’t understand why it will work and help you enjoy success you will throw in the towel when losses occur. If you don’t have the discipline to follow a forex trading system you don’t have one!
If you follow a vendor make sure you understand the system and why it will work long term. If you build your own this is not normally a problem as you will know the logic you put into it.
Drawdown
All currency trading systems no matter how good they are at marketing timing, will have periods of losses - that’s simply the reality of forex trading. Make sure you are comfortable with the drawdown and by this we don’t mean the average drawdown – but peak to valley drawdown.
Assume that you enter the system on the worst day and check the size of drawdown and period to recovery and that it matches your risk tolerance.
Always assume your worst drawdown is in front of you.
A Time Saving Way to Make Profits
If you have a currency trading system you will normally only need end of day data (not a live forex data feed) and it should take you around 30 minutes a day to execute. Pick the right currency trading system and for very little effort you can enjoy tremendous gains and picking a profitable currency trading system is the subject of our next section - best currency trading systems.
You can incorporate a good currency trading system into your forex trading strategy and enjoy currency trading success.
In the section best currency trading system we will look at what separates the best trading systems from the losing majority - but let’s review the basics you need to consider first.
Time Span
First you need to decide what timescale you wish to trade over.
Do you want to long term trend follow, swing trade in forex or use a forex day trading system?
This is really a matter of choice, except in forex day trading. Forex day trading systems don’t and will never enjoy long term success, so don’t be tempted to try one, as all short term volatility is random and no day trading system will work.
If you are a patient trader then long term trend following would be a good choice - but you need to be very disciplined and accept short term drawdowns in open equity against you.
If you are not so disciplined, then swing trading in currency is a good choice.
These trading systems trade more frequently, there is plenty of action and profits and losses are banked quickly.
Responding To Market Action
Never be tempted to buy a forex trading system or base it on the logic of predicting where price action will go – it won’t work.
Why?
Because prediction is another word for hoping or guessing and that won’t make you money in life generally and certainly not currency trading.
There are a lot of currency traders who sell the myth that you can predict market movements in advance. Such as systems based on Fibonacci, W D Gann and Elliot Wave theory and none of them work and the reason is obvious:
If FX markets could be predicted with scientific accuracy, then we would all know the price in advance and there would be no market! This is common sense - leave the scientific theories to the dreamers and far out investment community and concentrate on trading the reality of price change.
If a currency trading system trades the reality of price change, it’s trading facts not guessing or hoping and will have a much better chance of success.
Always keep in mind that forex trading is a game of odds - not certainties.
Track Records & Back Testing
There is a huge market in currency trading systems on the net and most don’t have a real track record. They do however have a simulated track record done in hindsight which means that vendors can present any track record they like and they do.
You often see track records with extra ordinary track records in back testing which totally fail in real time trading.
If you are buying a currency trading system, its best to stick with one that has a real time track record - with audited account statements. After all, if the vendor does not have the confidence to trade it why should you?
If you are building your own trading system, then you also need to make sure you don’t “curve fit” it.
Curve fitting is simply bending the system to fit the data.
One trader I know likened this to shooting at a barn door blindly and then drawing a bulls-eye around each and everyone AFTERWARDS!
Its temping to curve fit, to make your system perfect and the best way to avoid it is use a long segment of data, don’t use too many rules and trade every currency in the same way.
Many forex traders create unique rules, for currencies and different markets but logic tells you as no two segments of data will ever repeat this is doomed to failure.
Keep your system simple and it will be more robust in real trading and more likely to succeed – add to much curve fitting and bending your system to fit the data and it will break.
Discipline Comes From Understanding
If you build your own trading system or follow a ready made one you must understand and have confidence in the logic, to follow the system and execute your trading signal with discipline.
If you don’t understand why it will work and help you enjoy success you will throw in the towel when losses occur. If you don’t have the discipline to follow a forex trading system you don’t have one!
If you follow a vendor make sure you understand the system and why it will work long term. If you build your own this is not normally a problem as you will know the logic you put into it.
Drawdown
All currency trading systems no matter how good they are at marketing timing, will have periods of losses - that’s simply the reality of forex trading. Make sure you are comfortable with the drawdown and by this we don’t mean the average drawdown – but peak to valley drawdown.
Assume that you enter the system on the worst day and check the size of drawdown and period to recovery and that it matches your risk tolerance.
Always assume your worst drawdown is in front of you.
A Time Saving Way to Make Profits
If you have a currency trading system you will normally only need end of day data (not a live forex data feed) and it should take you around 30 minutes a day to execute. Pick the right currency trading system and for very little effort you can enjoy tremendous gains and picking a profitable currency trading system is the subject of our next section - best currency trading systems.
