What to Look for in a Successful Forex Trading System
Written by OnlineLoan on 00:16What to Look for in a Successful Forex Trading System
By: Mark Soberman
There is no doubt that to be successful in Forex trading you need to have a good system. A system, applied consistently, will ensure that you do not allow yourself to be ruled by emotion, but follow the signals that the market is giving you. The system will often refer to indicators, sometimes even custom calculated indicators, which have been found historically to reflect the psychology of the market.
One key to a successful plan is that it never requires interpretation in any situation, but always has the required trading response included in its rules. Only in this way can the plan be time-tested to be effective without introducing the variable of emotional input. What you need is the confidence that the system is time-tested, so that you are not tempted to deviate from it when actively trading.
A trading system, or plan, does not need to be complicated, and some of the simplest of plans are very effective. Adding complication does by no means insure a better performance, even though some refinement of a plan can be beneficial. Most successful traders will tell you that one of the ways novices lead themselves to failure is by exerting effort to introduce more and more complication, in an endeavor to eliminate losing trades. The fact is that losing trades happen, but a good risk/reward ratio and sound money management techniques will make sure that losing trades are not catastrophic to your account, and can quickly be overwhelmed by your gains.
What is sometimes not appreciated is that because trading is basically a game of human psychology, the methods that work in one market are usually easily transferable to another totally different market. At its root, the trading system seeks to interpret the underlying psychology that is moving the prices, and it does this not by considering the commodity or currency being traded, but by the evidence of the price movements to date.
Many systems, involving both values and pattern recognition, can be implemented over a variety of time frames. The psychology of the market is revealed in both micro and macro charting, and Steve Nison, who introduced candlestick charting to the West, always emphasizes that candlestick patterns in particular are applicable to every time frame.
The system should also be easy to understand, and you should be able to explain it to other traders and for them to get consistent results. If you have a system that is open to interpretation, then it is also open to performing differently from the back tested results, usually to the detriment of your account. If you are considering implementing a system which has been developed by a third party, then you should at a minimum require that you can access the developers if you have any questions on the reasons for its performance.
So the most desirable traits in a trading plan include that you do not have to make subjective choices influenced by your current emotions, that the system is easily understandable and simple, and that it can be applied in a variety of situations.
Mark Soberman of NetPicks LLC has been trading for over 20 yrs and offers free educational resources, live forex and futures signal services, as well as a new product focused on trading the forex market.FX Live!
Mark Soberman of NetPicks LLC has been trading for over 20 yrs and offers free educational resources, live forex and futures signal services, as well as a new product focused on trading the forex market. http://www.netpicks.com/fxlive
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