Make Your Own
FOREX Trading System
Forex seems to be a very popular subject
that promises quick profits. The net is filled with thousands
of results on forex trading systems, all of which will try to
convince you that theirs is the only sure-fire profit making
system available. The truth of the matter is that yes, some or
most can make you money, but you dont need to pay someone else
to teach you something thats really pretty simple to create for
yourself.
Basically, a FOREX trading system needs to
be able to spot trends early and also be able to avoid sharp
rises or falls due to a particularly volatile market. This may
seem like a difficult thing to accomplish and to be honest no
FOREX trading system will perform both functions flawlessly
100% of the time. However, what we can do is design a trading
system that works for the vast majority of the time this is
what well focus on when designing our own FOREX trading
system.
What elements then do we need for our
system? The most important criteria are as follows:
1. What kind of trader are you? Do you like
to follow long trends, or are you glued to your charts for 8
hours straight per day? If youre new to FOREX trading its
suggested that you stick to long term trading as its far easier
to spot trends and cut your losses when compared to day
trading.
2. Find an indicator youre comfortable with.
Knowing when to buy is key to generating big profits, so its
important to understand some of the key indicators and how they
can identify trends. Moving averages are probably the easiest
indicators to work with and can be very useful in recognizing
emerging trends. A common tactic is to use two moving averages,
one slow and one fast, and wait for the fast average to pass
above or below the slow average. This is commonly known as the
moving average crossover technique. As with everything else in
our FOREX trading system its simple, easy to understand, and
effective.
3. Risk Management. Successful FOREX traders
understand that you *will* lose money at some point or another,
no matter how effective your FOREX trading system is. You will
always want to use a stop-loss on all your trades, but the
amount risked will vary from person to person based on their
experience and available capital. Knowing where to set your
stop loss can be tricky you want to limit how much you could
possibly lose so youd be tempted to set a very small range, but
at the same time you want to allow for short term rises and
falls so that you dont exit your position too early.
4. Know when to get out. Knowing when to
exit a trade can be just as tricky as knowing when to enter,
but for your custom FOREX trading system you want to pick one
way that youre comfortable with and just stick with it. One
simple technique is called the trailing stop technique, and all
this entails is updating your stop loss as your position
increases in value. Another popular method used in many FOREX
trading systems is to set a target and get out when that target
is reached. This can be based on support or resistance, or
simply based on a certain number of pips. Find a method youre
comfortable with and stick with it.
5. Test your FOREX trading system. So you
now have a trading system that tells you when to enter and exit
a trade, so see how it performs using real data. Find
historical data for a currency youve thought about trading, and
analyze the charts. Apply your FOREX trading system to the data
you see in the charts and write down the results. Was the
system effective? Would you have turned a profit or a loss? Try
your trading system on several different charts and record the
results. If youve got a winning system then its time to move
onto live data via a demo account. Practice makes perfect and
you dont want to risk real money until youre confident your
FOREX trading system can provide you with decent profits over
time.
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