The main objective of this article is to guide you through the process of developing your own trading system to trade Forex .
Although devise a system can not take too long, if it can take a while to prove its effectiveness. So, you must be patient, because a long-term good trading system can earn you a lot of money.
Step 1: Time Frame
The first thing you need to decide when creating your trading system is to know what kind of trader you want to be. You want to be trader of 1 day or 1 hour? I like to observe charts every day, every week, every month or even every year?
How long would you like to keep your open positions? .
Answering these questions will help you determine which time frame to use in your operations. Although similarly can analyze graphs with different time periods this will be your main time frame, which will use when searching for signals to open or close positions.
Step 2: Choose pointers that will help identify a new trend
Since one of our goals is to identify trends as soon as possible, we should use technical analysis indicators can make it . For example moving averages are one of the most popular indicators that traders use to identify trends. They are typically used two moving averages (one slow and one fast) and is expected to fast to slow crossing above or below.This is the basis for what is called based on moving averages crossing system .
Of course, there are many other ways to find trends, but moving averages crossings are one of the easiest ways to achieve this.
Step 3: Find indicators confirm the trend
The second goal for our system to Forex trading is that it has the ability to avoid false signals and avoid falling into false trends. The way to do this is by making sure that when we see a sign of a new trend, we can confirm it using other indicators.
There are many indicators that confirm trends , such as: MACD , Stochastic and RSI .
As you feel more familiar with the indicators, you will find some who will prefer over others and you can incorporate them into your system.
Step 4: Define the level of risk
In developing the system it is very important that you define as you are willing to lose on each trade . A few like to talk about losing, but actually a good trader thinks first of what may eventually lose before thinking about how much you can earn.
The amount of money you are willing to lose is very different from one trader to another.You have to decide how much space is enough to allow your operations breathe, but at thesame time not risking too much in a single operation. In following lessons will explain more about money management (money management). Money management plays a big role in the risk that you give each operation .
Step 5: Define inputs and outputs
Once you have defined how much you are willing to lose on a trade, the next step is todiscover where to place the closure of an operation to obtain the maximum benefits .
Some people like to get as quickly as possible in a trend when indicators give a good sign, even if the candle has not closed. Others, like waiting until the close of the candle.
In my experience I think it is better to wait for candle close before making an entry. I have been in many situations where I am in the middle of the candle and all my indicators fit, only to discover that at the close of the candle, the operation turned against me.
But you can have a different opinion when you have some experience. It really is just a style of operating. Some people are more aggressive than others and must go slowly realizing that kind of trader you are you.
For closures or exits the market, there are different options. One way to make a closure is to place a stop loss , this means that if the price moves in your favor for "X" amount, move the stop loss for that "X" amount.
Another way is to determine a level, and exit when the price reaches that level .How to calculate that level, it depends on you. Some people choose support and resistance levels for it. Other, only choose the same number of pips in each operation.Anyway, calculate the target level is up to you, just make sure it is optimal for you and stick to it. No matter what happens, never leave earlier.
Another way out is to have a criterion that a signal will allow you to leave. For example, you can create a rule that when your indicators marked a certain level, you leave the operation.
Step 6: Write the rules and stick to them system!
This is the most important when creating your Forex trading system step . You must write the rules of your system and always follow them . Discipline is the most important feature a Forex trader must have, so stay always faithful to your system! Just so you can detect possible errors and improvements but step by step, try, try again, draw conclusions and make small changes without going crazy. If you are constantly changing system without giving a margin is impossible for you to know what works and what does not. No system will work for you if you do not follow their rules, so remember to be disciplined!
How to test your system?
The fastest way to test the effectiveness of your trading system is open a demo accountwith an online broker . You can access the trading platform and graphics where you cango back in time and move the plot forward slowly to see if your system had worked well. Ideally sailing sail to advance . When you move the chart sail sailing you can follow the rules of your trading system and analyze what the outcome of your operations accordingly. You can record the history of your operations and be honest with yourself.
Save gains, losses, average earnings and losses. If you are happy with the results test your system on the demo account for a reasonable period of time . It is recommended a period of at least two months. This will give you an idea of how you can operate your system when the market moves. You must believe that there is a big difference when operas live, when you only do tests.
After a couple of months of operating in demo, you'll realize whether your system is reliable for the market and switch to using your system in a real trading account . At this point, you should be confident and feel comfortable with your system to open operations without hesitation.