Create your own FOREX trading system in 5 easy steps
A quick search on your favorite Internet search engine for the phrase “FOREX trading system” will return thousands of results, all of which will try to convince you that yours is the only sure-fire profit system available. The truth of the matter is that yes, some or most of them can make you money, but you don’t need to pay someone else to teach you something that is very simple to create yourself.
In essence, your FOREX trading system must be able to spot trends early and also be able to prevent sharp rises or falls due to a particularly volatile market. At first glance this may seem like a difficult thing to achieve 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 most of the time; this is what we will focus on when designing our own FOREX trading system.
So, what elements should we take into account for our personalized system? The most important criteria are the following:
1. What type of merchant are you? Do you like to follow long trends or are you glued to your charts for 8 straight hours a day? If you are new to FOREX trading, it is suggested that you stick to trading for the long term as it is much easier to spot trends and cut your losses compared to day trading.
2. Find an indicator you are comfortable with. Knowing when to buy is key to making big profits, so it’s important to understand some of the key indicators and how they can identify trends. Moving averages are probably the easiest indicators to use and can be very helpful in recognizing emerging trends.
A common tactic is to use two moving averages, one slow and one fast, and wait for the fast moving average to move above or below the slow moving average. This is commonly known as the moving average crossover technique. Like everything else in the trading system, it is 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 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 lose, so you’d be tempted to set a very small range, but at the same time you want to allow for short-term ups and downs so you don’t exit your position too soon.
4. Know when to get out. Knowing when to exit a trade can be just as tricky as knowing when to enter it, but for your custom trading system, you should choose a way that you are comfortable with and just stick with it.
One simple technique is called a ‘trailing stop’ technique, and this all involves updating your stop loss as the value of your position increases. Another popular method used in many FOREX trading systems is to set a target and exit when that target is reached. This can be based on support or resistance, or just a certain number of pips. Find a method you are comfortable with and stick with it.
5. Test your FOREX trading system. So now you have a trading system that tells you when to enter and exit a trade, so see how it works with real data. Find historical data for a currency you have thought about trading and analyze the charts. Apply your trading system to the data you see on the charts and write down the results.
Was the system effective? Would you have made a profit or a loss? Test your trading system on several different charts and record the results. If you have a winning system, it’s time to move to live data via a demo account. Practice makes perfect and you don’t want to risk real money until he is confident that his trading system can provide you with decent profits over time.