Forex trading can resemble gambling, when executed without knowledge and skill. Entering the trade at the right moment is just as important as exiting it promptly. Excellent trading skill, knowledge and experience are required to do this. Forex trading with constant profit is only possible with a trading system and strategy.
Since there is no one trading system that fits all, you have to choose a trading system that works for you. You can choose to create a new system or adopt an old one, with modifications. All systems have to address some basic issues:
- Risk appetite: How much risk is acceptable to you.
- Emotional trades: A lot of money is lost on trades that are based on emotions, mainly impulse.
- Constant profit: A trading system has to give profit on a regular basis.
Your steps to create your trading system should have following fundamentals:
- Know yourself: One trading system does not fit all because we are individuals. So knowing yourself is the first and the foremost step in setting the goals of a trading system. The system should make use of your strengths and safeguard against your weaknesses.
- Technical Knowledge: Technical knowledge refers to the skill of analyzing trends and charts. There is a huge arsenal of techniques like indicators, candle analysis, Elliot Wave theory. Each techniques commands respect and has proven its usefulness at one time or another. Choosing between techniques is a Herculean task. You will need to select one or a small group of techniques working in conjunction.
- Adapt: If there was one perfect trading system, everyone would have it. Every trading system is bound to fail at some time. At these times, you should be ready to observe and take corrective measures. A trader’s ability to adapt will underline his success. Each time your system fails, look for the pointers of failure and rework the system to perform better. Always be ready to change, modify or even adopt new systems.
It is easy to see if your trading system works. Just check your bank balance. If it has been growing constantly, then the system has been working. If however your growth is irregular, erratic or negative (you are loosing money), then it is a good time to rethink and re-evaluate your system.
