Developing a Forex Trading System
When you become familiar with most of the technical tools that analysts use, the next step will be to integrate them into a coherent forex trading system. Yes you can purchase one easily, but it will set you back some dollars and also by creating your own there is no question it will suit your style.
The first thing that you will want to prepare in your trading system is the time frame. Having spent a considerable amount of time in the forex, you should have developed a feel for how long you can analyze the market. Also consider the period you would like to maintain regarding your position.
The end goal of all forex trading systems is to enable the trader to make profits in the market, and that is achieved through the identification of trends. So your system needs to have trend indicators set up properly. There are several tools to choose from, but among the most popular are Stochastics, EMA and RSI. As you employ these technical utilities, you will find the ones you are comfortable with.
Of course, the more indicators that you use, the greater the possibility that they will give conflicting signals, so try to keep it simple. Try other tools that will help you make sense of the forex market in case the indicators give conflicting signs.
An important part of any forex trading system is risk management. Protecting your account means setting up a limit on how much you are willing to lose in the currencies market. You can utilize a Stop/Loss or a Limit Order. Alternatively, you can have an adjustable limit; as the price rises, so does your loss limit.
Related to this are the entry and exit points. Again your forex trend indicators will give signs for the appropriate entry point, and for the exits, some wait for the indicators to give the signal, while others prefer to depart when the price hits a certain level.
Once you have all the tools and risk management strategies in place, the next step is to take your forex trading system for a test drive. The way to do this is by signing up for a demo account. Take your time here. A few weeks should be the minimum length of time, although some try it out for months on end.
When you are in this testing stage, take note of the performance of your trading system. Is it working according to plan? Record any and all profits and losses. If it lives up to your expectations, then you can use it in the real market.
Finally, it is important to remember two things: one, even the best forex trading system in the world will not always be correct, and there will be times when you will miss the peak or even incur a loss.
However, if your system is well set up, and you do not veer away from it, then you will make money, and in the long run be very profitable. The important things to remember here are patience and discipline.