One of the best pieces of advice a Forex trader will every get is to stop jumping from one Forex trading system to the next “big thing”.
I know it gets difficult when you are using one Forex strategy and then your inbox is jammed with offers for another trading method. I doubt you delete those emails without first taking a look at what is being offered.
What about trading forums?
Scroll through any Forex trading forum and you will see methods and trading systems that appear simple to apply. I’m sure many of you applied the trading indicators that were part of the trading system and put them on your chart. Whether it was a moving average combination or some type of oscillator like the RSI, you put it on and did a rough “look-back” over a small sample size of data.
Believe it or not, looking at a different way of trading Forex is a common thing.
You are not “odd” for doing so.
This is a rough look at how many of us get attracted to trading:
- You get interested in making money and end up stumbling across currency trading.
- You buy into the marketing hype about Forex trading and believe it is easy
- You find a free Forex trading strategy on Google or you purchase one that promises to make your computer an ATM
- You kick open a demo account and your returns are excellent – with fake money
Can you agree that is somewhat the path to trading you have been on?
Something close?
Let’s continue on the trading journey……
- Demo trading went well so you decide to put $2000 real money into live trading…..not the amount you had in your demo account ($10,000 / $100,000)
- The emotional roller coaster begins. When real money is on the line, the trading performance is not like it was on that demo account you were awesome with
- You end up blowing up the Forex trading account and made your broker a little more rich
- You take a break from trading for a little while to figure out what you did wrong…
You begin again but this time with the “holy grail” trading system
“That Forex trading system on this website that sells for $1500 looks good, I will buy that and try that one on my next 2nd attempt”.
That is crazy!
Get off that hamster wheel and act like a professional!
3 Hard Facts About Your Forex Trading System
It’s time for a reality check about trading systems and YOU.
Most get these 3 points wrong and end up giving up on the dream of trading Forex for a living.
> The true potential of your trading system take months/years – not days – to become perfectly clear
If you are jumping from one Forex trading system to the next, you will never know the true performance of a trading system. The only way to know how a trading system performs is to trade it for quite a long time.
That is called the expectancy of your trading system
Yes, you want to back test your trading system but understand that it’s only a rough guideline of the potential performance in the live market. It is NOT the reality of the trading system
Only after you have trade a system and assemble and good sample size of trades, only then will you have a fair idea of the trading system’s performance. If you trade only for a month, you will never get a fuller picture of what the trading system is capable of.
Courtesy of Netpicks.com
You’ve got to give trading system sufficient time to see how it performs in different market conditions.
Let’s use an example of a real trading system using a trading indicator that you can find on this website: “Floor traders method of trading”
This Forex trading system performs extremely well in good trending markets but performs poorly in ranging market. What if you started using that trading system when the market was ranging? You are going to suffer losses and will no doubt think the trading system is garbage.
You abandon that trading system and get another one.
In the moment when you switch to another trading system, the market is trending nice and this is where the floor trader’s method is really designed to capitalize on. So you end up not seeing how it could have performed during that trending market period.
You did not allow the trading system that relies on a trend to fully play out! That said, there is a way to use that trading method to signify a consolidated market and you can position in breakout trades. Look for the moving average indicators to converge on the chart and you may have found an area you can trade.
> The Forex system is good – it’s you that is the problem
This one is harder for people to accept because it points to them as the source of trading failure and not the trading system.
A proper Forex trading system has a set of rules that you are supposed to follow every time you buy or sell a currency pair – it’s called a trading plan.
These trading rules are:
- Specific in terms of what to look for in a trade
- Specific in how to set the risk parameters for the trade
- Specific with how you will enter the setup
Every time you take a trade following the rules of the trading system means you are only taking the trade based on the trading systems rules.
The trading system will give you the buy signal, the sell signal, and even the exit signal and you have one job – follow the trading signal based on the rules of the system
Many of you will not.
Even if you are able to find a trading system with a positive expectancy that you fully understand, many will override the trading signal of the system for a variety of reasons:
- You have an untested belief about the market
- You follow the advice of a Twitter trader you’ve never met
- You are too scared to take another loss
Traders are human – we all have a brain that can easily be convinced of something else. As a trader though….we MUST be consistent with each and every trade. ONLY concern yourself with aspects of the proven trading system and trading plan you have for Forex.
Anything else makes you lose consistency and without consistency, the ability to fine tune or even objectively judge your trading system is compromised.
Which brings me to the Forex robot scams: Those Forex EA’s do take you out of the equation but they will also strip funds out of your account with the amount of losing trades. Do not get sucked into buying an EA as a Forex system.
> Losing some trades does not mean a losing trading system
You are going to take a string of losing trades. As I said before, the trading system has its rules for entry and exit. That’s what you use to enter a trade every time you get in and out of a trade.
When you enter a trade if that trade is a loser, its not because of the trading system.
Remember, you’ve followed the trading system’s rules – the rules you have tested to show an edge in the market – so you’ve been consistent!
So why did the trade become a loss…?
Here’s your answer: the Forex market goes where it wants to go, you can’t control it. It is natural to have a perfect trading setup only to have the trade lose.
If the trading system gave you the signal to sell EURSUD and you sold and then the market rose and hit your stop loss, that’s just the market behavior.
It will go where it want’s to go.
What should you do?
You should take the next trading signal without question (as any successful Forex trader would do) adhering to proper trading risk management. You must let the trading system work it’s positive expectancy.
Should You Ever Change Trading Systems and Strategies
Let the numbers do the talking. If you are seeing the string of losing trades outstrip the expectancy of the trading system, something fundamental in your trading strategy does not suit the reality of the current market.
Sometimes it is time to say good-bye and look for another way to trade.
The issue is that you must know the type of trader you are. A swing trader will have different needs than a scalper. Trading the Forex market may need a different strategy than options. Trend trading will have different needs than counter trend trading.
There are many Forex trading strategies and systems here which you can use. But do not jump from one trading system to the next because only time will tell how this system performs.
Either way, before you start using a trading system, one of the first things you should know is this:
- what are the strengths of my trading system? On what type of market conditions would this system be expected to perform exceptionally well?
- What are the weakness of my trading system? On what type of market conditions will it perform poorly.
Understanding these two important points above is crucial to keep using a trading system when trading during periods where the trading system is not performing well and that’s because you know because the market condition is not suitable for it.
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