What is the purpose of an forex trading system?
While the most obvious answer to the above question might be to make money, this is not actually the correct answer! The aim of your online trading system should be:
1. To be able to identify trends as soon as possible.
2. To be able to find indicators to confirm your trendsIf your trading system cannot fulfill these two criteria, then it definitely will not be able to make you money.
The most important part of an online trading system is the stick to the rules and criteria that you put in place. There is no point in spending time and effort creating your system, to then be caught up in the moment and forget everything that you have planned.
What should I consider in my forex trading system?
There are some important criteria that should be considered when developing your trading system:
1. Time Frame - Are you a day trader or a long-term trader? Do you look at charts daily or weekly? Knowing the type of trader you are will determine the time frame you should use when looking for trade signals.
2. Indicators to Identify & Confirm Trends - It is important to select the appropriate indicators for identifying new trends. Just as important is finding indicators that confirm these new trends, to ensure you aren’t acting on a “false” trend.
3. Determine Your Risk Level - It is important to determine your own personal level of risk i.e. how much you are prepared to lose. Each person’s risk will be different, but you should plan your system to act within your risk limit.
4. Define Entries & Exits - Knowing when you will enter and exit the market is very important. Will you act as soon as your indicators line up or will you wait until the candle closes?
How can I test my system?
It is important to test your trading system before launching straight into live trading under the system. You can do this by first looking at charts for previous time periods, following your trading rules and simulate where you would enter or exit trades. It is then a good idea to try out your system in a Demo account until you are confident it is working, and then move to a live account
