A forex trading system is the difference between a winning trader and a losing trader. Most profitable traders are simply individuals that have an above average forex trading system, and are willing to stick by it in their trading. Traders who are jumping from one trading system to the other will never see any consistency in trading results.
What should you be looking for in forex trading systems?
The system must suit your personality
This is where many traders get it wrong. There is no point using a scalping forex trading system if you cannot handle the stress of looking at the 1 minute charts and hitting the buy and sell button ten times in an hour. In the same vein, there is no reason you should be using a system that is meant for the daily charts if you do not have the patience required to sit on your hands for a few trading days without entering the market. So the first question you should ask yourself is whether you can cope with the requirements of a trading strategy.
It must fit into your schedule
As an Australian trader, you must ensure that the system is one that will rhyme with your daily activities. You don’t want to be stuck using a strategy that requires you stay awake all night because you have to trade a particular session. If you have a day job, or other activities you do in the day, you must make sure that the strategy is one that allows you to trade while carrying out those activities. For instance, a 4 hourly strategy may work out well for a trader with a day job, or children to look after, but he won’t be able to cope with a 5 minutes strategy.
It must be proven to have at least 70% accuracy
People still make money with strategies that are not 70% accurate but to be on the safe side, ensure that the one you intend to use is at least 70% effective. You can confirm this by running back tests for at least the past 2 years. After the back tests, you can try out the strategy for a month to see what the results are. Bear in mind though, that the high accuracy will amount to very little if you are not able to stick to basic trading principles. People have crashed their accounts even when trading with forex trading systems that are 90% accurate.
It should have a mechanism for weeding out fake signals
If your trading strategy does not have a mechanism in place for weeding out fake signals, your trading results will ebb and flow all through the month. This will lead to giving back profits made during the course of the month as soon as you hit a ranging period. Out of 20 trading days in a month, the market ranges for around 50% of the time. Traders who don’t have a way of staying out of the market during this period end up giving away profits.