Trading Systems for Forex: 5 Principles
Trading forex can be a complicated process. It is a complicated process largely due to the innumerable factors involved in the market. However, human emotion such as greed and fear further complicates the situation. Let’s look at how forex trading systems simplify Forex trading for everyone.
Five principles lie at the core of most successful Forex trading systems:
Principle #1: Be Realistic
You cannot stress this point enough. We find it sad when advertisements promise 1000% returns yearly or make such absurd promises. You need to be realistic about your expectations before entering the market. If you do not, your successes will seem like failures, and you will lose motivation. You may quit halfway, even though you are making good progress.
There are no guarantees in the Forex market, so mentioning “guarantee” is almost certainly a misrepresentation. It is impossible to know what will happen if you take a risk and play it intelligently.
Principle #2: Keep It Simple
Increasingly complex strategies are offered to Forex trading students by a lot of Forex trading coaches. On paper, the strategies seem great. However, they all fail in the market. Retail investors need a strategy that is easy to execute. Difficult strategies are complicated and can be difficult to execute.
People lose money as a result of slippage. It is important to gradually increase the complexity of the strategy in the Forex market, just as you would with everything else. Don’t trade complicated strategies for the initial stages, such as straddles and reverse straddles. Instead, focus on simple strategies and slowly increase them. Soon, you will feel comfortable trading complex instruments. A second approach would be to trade on a demo account until you reach a certain level of proficiency before moving on to a real account.
Principle #3: Benchmark
The Forex market follows the same trend as other financial markets. As such, there will be periods when everyone will make a handsome profit and when everyone will lose money. These times are often referred to as the business cycle.
Since business cycles are so common, judging your performance based on an absolute return makes no sense. Even a 5% return is commendable in bad times. A 25% return is considered below average when the going is good. You need to benchmark your performance against other traders to assess your performance correctly. Consider it like a class of traders and try to maintain a high ranking. Forex markets are relative.
Feedback is an important part of any Forex trading system. It is important to evaluate the returns in the context of the markets. You need to know how well or poorly your strategies are performing to be able to make any changes. If you don’t, you won’t know what strategies are working.
Principle #4: Drip-Feed Model
Don’t invest your money in one trade while creating your Forex trading system. Use a drip-and-feed approach. This means that you can open more than one trade at a time. It is then important to determine which trades are making and which are losing money. You want to eliminate the losers quickly and increase your winning bets with the money free.
Principle #5: Don’t argue with trends
Additionally, forex markets are driven by trends. Because the Forex market involves leverage, no one holds a position for very long, so these trends are virtually unstoppable in the short run. To stay on top of a trend, it’s important to be conversant with technical analysis tools that can help you gauge it.
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