What is a successful Forex trading system?
A successful system is one that allows you to make and retain profit, consistently over time.
Every trader’s goals and situation is different, and this means you must define “success” based on upon your situation. Some traders are able to sit in front of their computer and trade all day. Some might only have a few hours a day. Some might have even less. Some traders need lots of sleep. Other traders don’t mind waking up every hour to check their trades. Some traders have a lot of starting money. Some have very little.
All of these factors will play into what kind of system works for you, and will define the range and scope of your goals. Too many new traders go into trading with the goal of getting rich quick. As we often say, getting rich quick is not a realistic strategy. The only thing you will achieve with that mindset is getting poor quick.
Your goals must be realistic, and a realistic goal for you before you start live trading is to be able to consistently make and retain profit. Only when you are able to successfully make and retain profit on a demo account should you move to a live account with small leverage. And then only when you make and retain profit on a small live account should you even consider increasing your leverage.
Here are some important tips to remember when you are developing a trading strategy that works for you:
Approach Strategy Creation like a Scientist
Scientists come up with a hypothesis and then they test, test, test. After they are done testing they review the results. They try their best to identify the flaws in their own experiments. And then they test some more.
You need to do the same thing. You start with a hypothesis. Lets keep this first one simple, and say that you believe the EURUSD will go down if the RSI is above 70 on the 4h charts. That is your hypothesis. Now you need to test that. You have two options: backtesting and forward testing. Back testing involves looking backward over the past times that the RSI was over 70 and see what happened. It is not enough to simply look back and say “oh yeah, I could have entered here.” Imagine if scientists just looked at some old data and said “oh yeah, this hypothesis probably would have worked.”
No, you must set specific guidelines for your trades: for example, when RSI goes above 70 I will enter short with a TP of 100 and a SL of 50. Now test every single time this trade would have been triggered, stick to your rules and tabulate your results without bias.
Start with Back testing
The fastest way to do this is programtically, in a trading platform like MetaTrader or Ninja Trader. You will have to learn some programming (C language, mostly), which does involve a learning curve, but once you are able to quickly code and back test your own strategies that programming knowledge will pay for itself in spades. There are sites out there, such as eLance, where you can hire a trading programmer. The upside to doing that is that you don’t have to learn a programming language. The BIG downside is you have to pay a programmer upfront and then for every little change you make.
My recommendation: take the time, do it right, and learn a programming language such as Meta Quotes (which is what MetaTrader uses).
After you have found a strategy that performs well in back testing, it is time to forward test the strategy in your demo account.
Then Test Some More
Just because a strategy performs well in back testing does not mean that it will perform well in forward testing. In fact, past results are never indicative of future results, but that is a discussion for another time.
Begin testing your strategy in real time, in your demo account, and follow the exact same rules you followed in your back testing. If the strategy performed well in back testing and performed well in forward testing then that is about as good as it is going to get.
Hope enjoy it.
