There is no specific system that is 100 percent foolproof. Over the course of your trading career, you will go through tens of trading strategies and automated systems, in an attempt to refine a method that produces maximum gains and minimal risk. But for many novice and intermediate forex traders, the process of developing their own trading system can be a stressful and costly enterprise. Below is a comprehensive guide that hopes to reduce the stress and difficulties of developing any trading system.
The Challenge of Developing One’s System
A common reason that restricts traders from acquiring the right trading approach that fits their personality and lifestyle is patience or lack thereof. A novice trader will commonly start out enthusiastic and overjoyed of their newly discovered trading strategy, but then lose interest and abandon it altogether after a few months of dormancy or string of losses.
One other reason is trying to learn everything at once. One cannot simply absorb all the trading systems and parameters accessible in forums and training courses. It is better to be great at one strategy that you can wield profitably than to chase the “Holy Grail” systems that proliferate the web. Ideally, you should have one strategy for short-term price action and another one that identifies long-term positions.
The How-To of Trading System Development
Now that we’ve identified two of the main challenges, let’s discuss how to develop your personal forex trading system. Start by looking at your strategy’s strengths and weaknesses. Does it have risk management parameters that protect it from taking low-quality trades during volatile times? Can it predict reversals earlier than other systems? Identifying the characteristics unique to your trading system is important as it dictates the next steps to system development.
Once you understand the system better, it is time to refine holes you’ve identified. For instance, if the system triggers bad trades during news-based price action, such as interest rate decisions and unemployment figures, you may need to adjust its parameters, whether its triggers are based on moving averages, Bollinger Bands, etc.
Third-party software are powerful tools to use when learning how to develop your personal forex trading system. Backtesting software allows you to rigorously test the long-term performance of a system in a matter of hours using historical data. There are also technical analysis software programs that view systems at a microscopic level, giving you hints of where a system is flawed and where it excels.