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Forex Trading systems – how do we separate the useful, from the useless?

Nov 29 • Forex Trading Articles • 3349 Views • Comments Off on Forex Trading systems – how do we separate the useful, from the useless?

The majority of the most popular and highly respected trading forums, are sub divided into various categories. You’ll see separate discussion sections for: general trading discussion, platforms, automation, brokers, journals, systems etc. Interactive trading and trading systems are generally the sections that experience the highest number of posts, but not the highest number of threads. This is reflective and evidence of not only the innate curiosity and creativity which traders possess, but also how intense and on occasion fixated traders can become on finding, or perfecting a strategy.

Interactive sections will generally contain traders discussing their live trading performance and strategies, often in real time. Trading system discussions tend it involve subjects, such as; the technical methods/strategies to employ in the market to attempt to profit.

If you take a cursory look at these systems you’ll see perhaps thousands of original posts listing a strategy idea, followed by tens of thousands of posts on each thread. These trading system discussion sections are the ultimate graveyard of our intense curiosity and desire for experimentation. But they should never be regarded as an arena of failure, as without this trial and error, it’s impossible for us to evolve as traders. They should be observed as forensic laboratories and a library for us to visit, to ascertain what works and what doesn’t.

 

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If you can take the time to analyse many of the methods in the trading strategies sections and then overlap and make comparisons with what’s being successfully used in the interactive trading sections, then a pattern appears which not only supports data regarding what style of trading or type of trader has the greatest chance, but what strategies work best. The data we can obtain from the cross referencing offers up a few fascinating insights.

Firstly; it would appear that traders who consider themselves to be either swing traders, or day traders, stay the course longest. This could indicate that (by association) they’re the most likely to achieve. It could also indicate that they’re trading part time to supplement their income, as opposed to regarding trading forex as a full time occupation.

Secondly; the traders who have stayed the course appear to keep their trading strategies simplified. The vast majority are not employing a complicated multi time frame, multi indicator strategy and will trade perhaps one security, one major currency pair only. Their deduction is that they’ll experience: lower spreads, less chance of slippage and a higher degree of accurate fills at the price quoted, when trading the major pairs, such as EUR/USD, GBP/USD and USD/JPY.

Some may look for what they consider to be their set up on either of these three pairs, but only risk a certain amount of their account in the market at any one time. Therefore, if they’re already in a USD/JPY trade and a EUR/USD opportunity also matches the entry criteria of their set up, they’ll enter, but use their position calculator to ensure they remain within the risk parameters, embedded in their trading plan.

Thirdly; all the consistently long term traders, always use stops and never use high leverage, they always employ a form of automation, however basic. They use stops to ensure that their risk per trade, perhaps 1%, is never compromised. They never use high leverage as this can effect their margin and lead to issues with their broker. And the use of basic automation not only involves stops, but can involve using take profit limit orders, entry orders and using basic programming available on for example MetaTrader 4, which allows you to enter the market if your specific technical conditions are met.

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