The Importance of Developing Your Own Forex Trading System
Have you ever thought about developing your own forex system? Well, whethre you'd liek to design one from scratch or to modify an existing one, have a look at this article first. There are many points to consider as this article shows you. When designing a system, you can either design one that's 100% mechanical and can be backtested with historical forex data (and then can even be traded with a forex robot!), or design one that required human intervention to trade [editor's note]
There are many, many different people out there selling their "forex secrets" or trading systems that promise to make you a millionaire in a month. How do you sort through the overload of information to pick the right one, without going bankrupt in the process?
The key to consistent success in forex is to develop your own personal trading system. Sure, someone else may be having great success with a certain system, and decides to crank out an ebook or a website to sell it. But because there is such a thin line between profitability and losing it all in the forex market, it is impossible to convey every single piece of information that makes a system successful. Even the most detailed systems will not have the answers to more than a small slice of the situations you will be faced with in an average day of trading.
So how do you go about developing a personal trading system? The first thing is to ask yourself what kind of trader you are. How much time do you have to spend at your computer? Are you comfortable carrying trades overnight, over a week, or longer? Are you prepared to leave your trades alone while you are not monitoring the charts? Day traders and swing traders tend to want to close all their trades before they leave the computer for an extended amount of time to make sure all is well. Longer-term traders leave trades open for days or weeks, and only log on occasionally for maintenance.
If you decide that you are not comfortable leaving your trades alone for an extended amount of time, consider yourself a day trader. Day and swing trades tend to rely on tight stops and technical analysis. Long-term trades rely more on fundamental analysis and worldwide economic conditions. This is another factor to consider - will you enter a trade based on chart action, support and resistance bands, overbought and oversold conditions? Or do you prefer examining larger trends in the economic factors that will affect prices?
The most important factor in the success of any system is testing. Constantly test and refine your system, and eventually you will find yourself consistently in profit. Pick several currency pairs and become a specialist in them. If you are a swing trader, is there a time of day where a pair always seems to move in the same way? Become aware of each currency market's opening and closing times. Often when one or both currencies in a pair are closed, movement will be much less volatile and more consistent. Long-term traders should focus more on the less popular pairs, as they are much less susceptible to short-term spikes in price that go against the overall trend, and you won't be stopped out as much.
Your trading style should also influence your choice of market maker. For example, if you are a swing trader, the spread becomes much more important to you. Choosing a market maker with smaller spreads will be very beneficial. People who are willing to take bigger risks should go for market makers with higher margins, and risk-averse people ought to find the smallest margin they can.
Does all of this mean that you should not listen to any forex advice? Of course not. You should just be wary of anybody who claims to have a foolproof system, especially when they are selling it. Don't expect to follow any system to the letter and have success. There are many systems and people out there that have good fundamental advice, and the key to profit is to take this advice as a basis for your own system that suits your own needs. If you are willing to put the time and thought into your trading, you too can save yourself being one of the 90% of people that do not achieve success in the forex market.
Evan Bastian is a forex trader and webmaster of Explore Forex, a repository of unbiased commentary and reviews on all things forex.
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