Your Own Forex Trading System
If you do a search on “Forex trading systems” in any internet search engine, you will see thousands of ads for the perfect trading system. Many of then state you can make big profits every day, and promise you will never make a single losing trade. The advertisers then go on to tell you they will sell you their secret system for just $5,000. Now anyone who says they never make a losing trade is talking baloney. In any case, if their system is so wonderful and they are such a smart trader, why would they need your money?
Without a doubt, some of these systems do work, but it is far better for you to develop your own personal trading system. Use your $5,000 to fund your trading account instead. If you develop your trading system using a free demo account, it won’t cost you a cent. Although you can never expect every one of your trades to make a profit, you can ensure you make many more profitable trades than losing trades. It is not very difficult to develop a profitable trading system. The difficult part is sticking to your system, no matter what, and this is where many inexperienced traders fail.
The main aim of any trading system is to identify trends as early as possible to gain maximum advantage from them. While at the same time, avoiding false trends and blips, where the market stands still or even moves against you. The earlier you catch a trend the more likely it is to be a false trend. However, if you wait until you are certain of your trend, before you start trading, the more likely the market is to stand still, or even move against you.
A good method to identify trends early is by using moving averages. Use two moving averages, a fast moving average (i.e. averaging over a small number e.g. 5, of time periods), and a slower moving average (i.e. averaging over a larger number e.g. 10, of time periods). Plot both on the same chart, and find the point where they cross over. This is called the “moving average crossover” system. When you have identified what you think is a trend, then you need to confirm it by taking into account other market indicators in addition to moving averages. By using at least two different indicators is the best method of avoiding false trends and blips.
Always decide how much you are prepared to lose on your trade, before thinking about how much profit you will earn. You must allow some for at least some movement against you, but at the same time you don’t want to risk losing too much on your trade. When you have decided how much you are prepared to lose, you can set up a stop-loss order. Finally, you need to decide at what price you will open your trade, and also at what price you will close your trade to get maximum profit. Whatever you decide, always stick to your decision, even if the trade moves against you.
You must develop a successful trading system, (by demo trading) that gives you consistent profits. Provided you develop the system while demo trading, you should not be influenced by emotions (e.g. worried about what will happen if you lose all your money). When you have perfected your system, write it down. Write down your stop-loss amount (e.g. if the price falls by 30 pips), and when you will close your trade (e.g. if the price rises by 50 pips). You must test your system for at least 2 months using a free demo account before trading for real. Always stick to your system, and remember, trading systems only work if you have the discipline to stick to them.
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