0 7 Keys To Choosing A Good Forex Trading System

Forex Trading Systems: 

So you want to choose a good forex system, one that will be worth your time and effort learning how to trade? 

Well, there are a couple of key points to keep clearly in mind, even before you go out hunting for a system to learn. 

Firstly, realize that some systems perform better or are more consistent than others. Yes, it's true that this in itself is in the eye of the beholder, as everyone is different. But say you're comparing two daily systems, and they're very similar in time required to trade it, but the first has better profitability and better consistency, with a smaller draw down, then for most people, the first is a system that may be more attractive. 

The second point to consider is that systems differ vastly in the amount of time that's required to trade it. Some systems are take less time to trade, while some require you to be at the screen several times a day, or more. This is a question therefore about what suits your lifestyle. 

What we're looking for is a currency trading system that's profitable enough - and this is different for everybody, that has an acceptable draw down, and that actually fits into our daily routine! 

This is important, as when any of these factors are not there, we'll find ourselves unable, or unwilling trade the system. 

By the time you've read this article, you'll know how to choose a forex system that's worth the time and effort to learn as prosper from! 

So here are the 7 power points when checking out a forex system or training course that you've found: 

1. The profitability of the system. 

This is shown as either pips per month, or when assuming a certain float amount, the dollar amounts per month. 

These profit figures are often quoted in pips per month, as it's one way of comparing trading systems, despite the fact that people are trading different trade sizes. 

However, when looking at pip profit figures, just be aware that if you assume a fixed risk model, that the average face value that people will trade with any given float, will depend on the average risk per trade. This in turn, depends on the average stop loss distance for that system. But the stop loss distance is not often quoted. 

As an example, say you want to trade with a 2% fixed risk model. If the average risk per trade in the first system is say 30 pips, and in the second system is 60 pips, then the average face value would be twice the size in the first system for any given float. If both systems produce the same average pip profit per trade, say 100 pips, the first system will, in terms of dollar amounts, produce the higher profit. 

If on the other hand, we're assuming a fixed dollar risk model, then the amounts you put in will depend on the size of the float. 

2. The maximum draw down either historical or based on real trading. 

The maximum historical draw down of a system is the largest decrease in equity that has happened in the past during back testing or real time trading of the system. 

When comparing draw down between systems, you can either look at pips, or if using a assumed float, look at the dollar value. Then with this dollar value, express it as a percentage of the cash float used. For example, if the maximum historical draw down was $6000 based on a $10 000 cash float, then the draw down is 60%, expressed as a percentage of the cash float. 

As well as using this draw down figure to compare systems, you can also use it to figure out the amount of funds you'd need to start trading the system. 

In the example we just mentioned, you'd need at least $16 000 in the beginning ideally, to trade the system. That is $10 000 float plus backup of $6000. This is in case a drawdown occurs when you first start trading, not months or years after you start. It's wise to be prudent and to have backup. 

3. What's the win loss ratio of the system? 

The “win-loss” ratio of the system, is the percentage of winning trades compared to losing trades. A high win-loss ratio is a bonus, in that the system may be psychologically easier to trade. 

But more ultimately, you need to look at both the win loss and profit loss ratio, which we come to now… 

4. The “profit-loss” ratio of the system. 

The “profit-loss” ratio is the average size of winning trades compared to losing trades. 

A high ratio means that the system is pretty robust. And this is a strength. 

So if the “profit-loss” ratio multiplied by the “win-loss” ratio is greater than one, then you're on the right track, that is, the system is profitable. You'd want this ratio to be 2 or 3 or more, not just bordering on one, which means that the system is profitable with a good edge. 

5. The consistency of the Forex system, by month and by year. 

If you can find a profitable system, with a reasonable draw down, and is very consistent, then that's great. Look at the monthly, quarterly and yearly results to best tell this. 

Some people won't mind a slightly higher draw down and less consistency, if the profitability was much higher. However, others depending on their circumstances and personality may want consistency more than profitability, to an extent. There's a different sweet spot for everybody! What's your sweet spot? 

6. How much time do you need to trade the system each day? 

Some forex systems require about 15 minutes a day to trade, and these are usually daily systems. And others need a few hours per day to achieve similar returns. 

On a slightly different note, some forex systems trade the major economic announcements. In these systems of course, you know exactly when you need to be at the computer. Do you want to be a day trader, or do you prefer to trade a short time a day and then focus your day on other businesses? 

7. Is the system quite systematic, quite discretionary, or a combination of the two? 

A mostly mechanical system is an advantage in that they're teachable and learnable. There's less need to learn discretionary skills that come from real-time paper and live trading, although it's rarer to find systems that are 100% mechanical. 

For example, when putting in your support and resistance lines, does the course give you clear rules so that your lines, and therefore your trading decisions will be close to that of the person that's teaching you, or the mentor that developed the system. 

Even better, do they have weekly examples of how they draw their lines to fine tune your drawing of these lines? 

So when checking out a forex course, keep these points in mind. 

And have some practice looking at various forex strategies for yourself so you get familiar with what's around. 
You want a system that was worth learning and trading, not one that causes frustration! 

Now you have some tools under your belt to help you properly look at forex systems.

Artical Source:-



0 Forex Trading: Incorporating Price Behavior into a Forex Trading System

Trading the Forex market has become very popular in the last few years. But how difficult is it to achieve success in the Forex trading arena? Or let me rephrase this question, how many traders achieve consistent profitable results trading the Forex market? Unfortunately very few, only 5% of traders achieve this goal. One of the main reasons of this is because Forex traders focus in the wrong information to make their trading decisions and totally forget about the most important factor: Price behavior.

Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.

There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as “the MA crossover made the price go up,” but it happened the other way around, the MA crossover signal occurred because the price went up. Where I’m trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.

Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn’t want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.

Don’t get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.

So, how to create a perfect Forex trading system?

First of all, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.

Secondly, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.

Third, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.

Artical Source:-
Email: info@straightforex.com
Web: http://www.straightforex.com


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