You need to develop your own forex trading system overtime. Using someone else’s trading system won’t help if you really want to become a successful trader. At one point in your trading career that might come soon rather than later, you would want to switch over to a mechanical trading system. Using a mechanical trading system not only helps traders to make decisions and increase profits but it also provides great psychological comfort to the traders.
You will realize the necessity of switching over to the systems trade in order to lower the psychological pressure experienced when making every market transaction. You will find most of the trader using a trading system approach to trading. Some of them may use a discrete trading system while others prefer a mechanical trading system.
The mechanical trading system lacks fundamental analysis capacity. However, the mechanical trading system set of rules may be translated into a computer program for automated trading.
The creator of such a mechanical trading system then becomes just another user of the trading system monitoring the computer generated signals. The trading system then generates trading signals that can be used by traders having access to the trading system.
Many traders over their trading careers develop their own trading systems. Besides the traders using their own trading systems, there are now many actively developed trading systems for sale as computer programs. These trading systems may be taken as grey and black boxes. Their prices might vary from a few hundred dollars to hundred of thousands of dollars.
Sometimes these trading systems are developed for big banks and corporations. The most significant thing about these programs is that the traders should be able to accomplish transactions in accordance with the signals generated by the trading system.
However, it is very difficult for a mechanical trading system to cope with different market conditions. Majority of the successful individual traders use self developed mechanical trading systems.
Change of market behavior leads to negative results from a previously effective trading system which obviously would require replacement. For example, many trading systems that are satisfactory in trending conditions become highly ineffective in nontrending environment.
These automated trading systems require thorough testing under different market conditions before they can be used in actual trading. One of the ways is to backtest them with the historical market data. Backtesting is now an integral part of any mechanical trading system’s performance evaluation. However, there is no substitute for live performance test. The most common disadvantage of these trading systems is the negative balance between he profitable and unprofitable trades. Many trading systems now depend on complex mathematical formula which is not understandable by the trader if the trader is not the author of the trading system.
What you need is a forex trading system that is profitable in the long term. In other words, it gives more winner than losers. Obviously the trading system can only be profitable in the long run if the ratio of the profitable trades is higher than the non-profitable trades. In other words the average profit of each profitable transaction is greater than the average loss of each unprofitable transaction.
The trader must accurately and unconditionally follow the trading system without making any attempt to adjust it to the market conditions. Making correction in any mechanical trading system in the process of the trade is almost impossible.
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