Trading System Development
By now, you should know that it is important to trade based on a trading system; otherwise, it will be very hard to generate consistent profits from the Forex market. Trading systems tell you where to get in and out the market.
When you devise a system, you look for certain moves and what indicators, patterns or price behavior caught that move, then you create a set of rules; when these rules are present in the future they signal a trade.
Most systems are based on price patterns or technical indicator readings (technical patterns). However, we must not forget something: patterns (whether chart or technical patterns) are never the same, they are only similar. In order for two patterns to be the same exact pattern the same traders need to be involved on both patterns, and not only this, they have to be in the same mood so they behave in the exact same way. We know this is almost impossible since there are just too many variables that need to be accounted for. Take for instance, how many traders are waiting in the sidelines? How many traders will get out of the market sooner than they have planned? How many of them will take partial profits? And so on…
This tells us that there are no certainties about the outcome of every single signal. Even though we don’t know the outcome of any individual trade, the outcome of a set of trades is predictable; we also know that if we follow rigorously our system we will be ahead of the game in the long run. When our system signals one trade it only tells you that there is a higher probability that the market will go in the intended direction, probabilities will play their part.
So we know two important things:
We don’t know in advance the outcome of any signal
If we follow our system rigorously, we will be ahead of the game
What is interesting is that we do not need to know what is going to happen next in order to make money in the Forex market, we only need to make sure we have a well-developed system and follow it rigorously.
However, before we apply this knowledge we need to develop our own system. In this lesson we will show you how to effectively develop a system the fits your personality.
The following topics are covered in this lesson:
Important information about trading systems.
There are two types of trading systems; we will review their advantages and disadvantages.
Review of the trading styles you might adopt to develop your trading system.
Not all trading concepts are for every trader, choose the one the better fits you.
After choosing our trading style and concept, we need to begin our system conceptualization.
Once we created our system we need to test it and see if it really fits our personality, a few tips to do an effective testing.
Before taking any action please take these important points into consideration.
A brief summary of the chapter