If you search for “FOREX trading system” on your preferred search engine, you’ll find thousands of results, all of which claim to be the only surefire way to make a profit. While some may be profitable, you don’t need to pay someone else to teach you how to make a system since it’s easy to create one yourself.
The key to a good FOREX trading system is to identify trends early and avoid sharp rises or falls that happen due to an unstable market. This might appear difficult, and no system will work perfectly all the time. However, you can create a trading system that works the majority of the time.
What do you need to think about when creating your custom trading system? Here are the most important factors:
1. Determine your trading style. Do you prefer following long trends, or do you like monitoring your charts for eight hours daily? Newcomers to FOREX trading may have a better experience with long-term trading since it’s easier to identify trends and cut losses compared to day trading.
2. Choose an indicator that you’re comfortable with. Knowing when to buy is essential to making substantial profits, and it’s vital to comprehend how indicators work by identifying trends. Moving averages are simple to use and can be used to recognize emerging trends.
A popular method is to use two moving averages, a fast one and a slow one, and wait for the fast average to go above or below the slow average. This is known as the moving average crossover technique. It’s easy to understand, simple, and effective, like everything else in the trading system.
3. Risk management. Successful FOREX traders understand that you can lose money at some point, regardless of how effective your trading system is. It’s essential to use stop losses on all your trades, but the amount risked varies from person to person depending on their experience and available capital.
Knowing where to set your stop loss can be tricky. You want to limit your potential losses, so you may be tempted to set a small range. However, you also want to consider short-term fluctuations to avoid leaving your position too early.
4. Determine when to exit. Knowing when to get out of a trade can be just as difficult as knowing when to enter, but for your custom system, you need to choose a comfortable method and stick with it.
A straightforward technique is the “trailing stop” method, which involves adjusting your stop loss as the value of your position increases. Another popular option in many FOREX trading systems is to set a target and exit when that target is reached, based on support or resistance or simply on the number of pips. Choose a method that you’re comfortable with and stick with it.
5. Test your system. You have a trading system that tells you when to enter and exit a trade. Now apply it to real data. Find historical data for a currency you’re interested in trading, and analyze the charts. Use your trading system to the data in the charts and record the outcomes.
Was your system successful? Would you have made a profit or a loss? Try applying your trading system to various charts, and document the findings. If you have a winning system, move on to live data via a demo account. Practice makes perfect, and you don’t want to gamble actual money until you’re confident that your trading system can generate a steady profit.
Written by Yusoff Allian