In order to trade successfully the currency market, you must act systematically and control emotions, under whose influence is often hasty and rash decisions. Therefore, traders use in their work on the Forex market trading system. In trading, trading systems play the same role as the business plan of company development – a tool for advance planning, allowing more precisely calculate the risks and increase the likelihood of making a profit.
Trading system or trading strategy is a set of rules governing the conditions under which and in what order the trader must open and close positions.
Its value lies in the precise formulation of criteria and conditions to be met by each transaction a trader in the forex market. Eliminating the possibility of an ambiguous assessment of the situation, the trading system reduces the psychological pressure suffered by the trader, and helps a more balanced approach to making important decisions.
The trading system gives the trader a detailed work plan in a certain time interval: it may be trading in the daily candlelight, hours or even 10-minutes. Which strategy will give the best result – you decide on the basis of individual financial and temporal features, as well as the objectives that are priority for you in the currency market.
Typically, the development of the trading system is made for a particular currency pair, for example EUR / USD. This does not mean that such a strategy will give a negative result in the commission of trading in GBP / USD. But you will need to personally test it and possibly make changes, for example, an adjustment of Stop Loss or Take Profit.
By building your own trading system, first of all, you will need to determine which areas of the market it is intended – for the long-term trends or the side corridors. The system can be combined, but as a rule, the effectiveness of classical systems trending down while working in the corridor, and vice versa, the system for the side of the market may not be the best way to show themselves in the trend. Therefore, the trader requires a clear understanding on what areas of the market system will work effectively, and how potentially lucrative areas, it will determine.
A very important role in building a trading system is given the amount of the transaction (the value of the tradable lot). It may remain unchanged or to change the results of previous transactions (this is called money management – money management). Each approach has its advantages and risk factors. Main scale evaluating the effectiveness of the approach is based on the ratio of risk to potential profits. High yield is the need to take more risk, the least risky currency transactions – a transaction with low profitability.
On the occurrence of the optimal moment to enter the market trader learns by signals that the system is supplied by a variety of analytical tools: levels, lines, graphics, shapes, candle configurations, technical indicators. You can rely on indicators or levels, and shapes – the choice of the trading system and the signal depends entirely on the personal preferences of the trader.
Construction for work on the Forex market trading systems – Is so broad topic that should return to its more detailed study after as a beginner will master the basic tools for decision-making and learn about the nuances of the foreign exchange market. To begin, we give an example of a very simple trading system.
The simplest trading system Forex
Attention! Provided by trading system is not a recommendation for action. This is just an example, so do not rush to use the rules set forth therein, without analyzing the feasibility of their application. Otherwise, the entire responsibility for any losses you might incur falls on you personally. DC “Akmos Trade is not responsible for your potential losses: as an example is presented is really the most simple system that can not serve as a basis consistently profitable trading. At the same time, if by our example, you create a system that will generate revenue from trading in the forex market, we are happy for you, in no way claiming to be part of your profits.
* Currency Pair: EUR / USD.
* Temporal frame: 1 hour.
* This trend system. The main trend is determined based on the price of a relatively simple moving average with period 24.
* Open position should be when the indicator is Stochastic (Stochastic) with a period (6,2,1) shows us that the roll back prices of counter-trend has ended, and the movement in the direction of the trend resumed, but not when the price crosses the average up or down. Signals Stochastic indicator let them be: for sale – fast output indicator line down from the overbought in the central area (the intersection of line 70%) to buy – a quick exit line upward from oversold to the central zone (the intersection of lines 30%).
* Close the position on the warrants. Stop Loss = 100 points; Take Profit = 200 pips. Count levels of orders should be made on the level of the actual opening.
* Mean profit for the insurance should be moved to the Stop Loss order to break even if the price will be 100 points.
Fig. 1. EUR, simple trading system, the signal to open a long position
On Figure 1 presented the progress of a deal to 19.12.200. The price is below the moving average. Stochastic indicator went down from the overbought, indicating that the renewed movement in the direction of the trend. Market opened down (manually) at a price of 1.4262. Position is closed with a profit at 1.4062 on the same day, 19/12/2008 at take-profit. Outcome of the trade 200 basis points, ie when the value of Lot 10 000 (0,1), your profit would have been $ 200, while Lot 30 000 (0,3) – $ 600.
End Example
Before embarking on the practical application of the established system, it is necessary to evaluate: if the system demonstrates high efficiency – it is accepted, if the system efficiency is low – you must either adjust it or abandon the application. The most important criterion for evaluating systems – yield transactions in the foreign exchange market, which is expressed as a percentage of the deposit.
When you select the trading system should pay careful attention to parameters such as the number of signals issued by a certain time span, the share of profit and loss signals, the average positive and negative average transaction.
Consider the following situation: during the year, the system gives 150 signals, of which 110 are profitable and 40 unprofitable. At first glance it might seem that the effectiveness of such a system is high. But the average profit to average losing trade will tell us the opposite: the average profit was 7.3 points (a measure that is comparable with the spread), and the average loss-making – 35 points. These data indicate the dominance of the total loss of gross profit and provide a basis for denial of the practical use of such a system.
A correctly designed and carefully tested trading system – the main condition for a stable of profitable trading in the forex market:
* Working on a clear plan, you will be confident to make decisions.
* Quality system eliminates the influence of emotional factors on the result of trade.
* Your main task – the analysis of statistical data: it is necessary to establish such rules of the trading system in which the profitability of transactions over a long period would overlap with losses in individual transactions.
* In the presence of an effective trading system on the Forex market can achieve stable capital growth.