Five steps to building your own forex trading system

Many traders struggle when it comes to finding a forex trading system. Quite often, traders look to others and often download trading systems and strategies from forums. While these methods might work for the original trader, it might give the same results for someone else.

This is because trading systems are unique and also require a certain mindset. Given that no two people can think the same way or exhibit the same psychological behaviors, it is not surprising to see why one trading system that works for one trader doesn’t work for another trader.

At some point, traders eventually give up and start toward looking at building their own forex trading system. This article gives you a quick five step plan to get started with building your own forex trading system. But bear in mind that it takes a lot of effort and practice. You will not become a pro trader overnight and the art of perfecting your trading strategy is a never ending process.

1. Understand your indicators

Knowing how an indicator works and what it does is crucial and perhaps very important if you want to build your own forex trading system. Many times traders use multiple indicators which displays the same information and making it redundant. Furthermore, using such indicators will also clutter up your charts. Get a firm grip on the indicators you want to use. It is also good to focus on forex indicators that you particularly like.

2. Pick out only a handful of instruments that you want to trade

By focusing on all the instruments that are available for trading, you end up getting confused. This also puts on a path of realizing that your trading strategy is not working. Instead, focus only on a handful of forex instruments and learn more about its characteristics. This will help you to get acquainted with the instruments or currency pairs and also helps you to understand what moves prices and the currency pair’s volatilities.

3. Choose a timeframe of your preference

The most important part is to pick the time frame that you will trade on the most. Some people prefer the 5 minute chart, while others prefer the 4-hour chart. No matter what time frame, it is important that you pick this and stick to it. While you can apply the multi time frame analysis approach, the time frame of your preference is something that you will trade on, all the time. Your forex trading system should also suit the time frame that you will choose.

4. Capture trends or make steady profits?

Do you want your trading system to capture trends in the market or do you want to make steady but quick profits? Answering this is essential as it will help to fine tune your trading strategy. Because each of these methods require a different approach, it will also mean that you will have to look into using different set of indicators. It might even mean that you will have to look at different currency pairs because not all of them exhibit the same characteristics.

5. Backtest, forward test on demo, rinse and repeat

Once you have the basics in place, give your trading system some time. Over the period, learn to understand the weakness and tweak your system accordingly. Ideally, have your trading system to go through various market conditions. The key is to backtest and then to forward test on a demo trading account for at least six months. This will give you good enough indication of how your trading strategy fares under normal market conditions. Once you have the foundations in place, you can then start trading live. But always ensure to trade with smaller lots until you gain familiarity and confidence in your forex trading system.

The above five steps are simple but require a lot of effort. As a trader it is important to have patience and to give your forex trading system a lot of time. If you try to rush, it will result in failure. And most importantly, do not be complacent.

Remember that even the best forex trading systems can give losses, regardless of how many years you were trading with it. Therefore, it is important to have your expectations right and ensure that you pay more attention to your risk management.

Many traders tend to give up on a forex trading system the moment it starts throwing losses. But perseverance is key here and you should continue to tweak your system. There is no silver bullet and certainly no trading system that will make you a millionaire overnight. But with practice, efforts and perseverance, you should be able to make consistent profits in the forex markets using your trading system.

Read 180 times Last modified on Wednesday, 01 July 2020 10:29