Basic
Trading System Components
Trading systems are constructed using parameters--the groups of
specific rules that generate entry and exit points for any given currency pair. Both trend following and counter-trend trading systems
adhere to four basic principles that govern the construction of any trading
system. These principles are also the essential characteristics of an effective
system:
This is easy to say, but hard to do. Maximizing the percent
return should be your primary objective while designing a trading system.
It's difficult to use a system that fluctuates between extreme
highs and lows; not only does it inhibit your ability to liquidate, but it can
also be psychologically taxing. Furthermore, by limiting risks, you are able to
decrease the effect of a "bad entry" (for example, going long during
a downward fluctuation).
Trading systems cannot rely on coincidence or luck! The system
designer can fulfill this principle of stability by broadening the parameters
and not optimizing too much in an effort to increase his or her chances of
success. The feasibility of parameters, including 'slippage', is discussed in
the second section of this tutorial. Again, it is very important to take
slippage into account when designing a system.
For a system's timeframe to be successful, coincidence and luck
should not play a factor. Feasibility must also be considered in this instance.
If timeframes are set too close together, the resulting amount of trading
frequency may not be possible due to software limitations and/or market-side
limitations.
A trading system requires the designer to make some empirical
decisions that directly affect the system's performance--if there was no need
for this decision-making, everyone would be rich. Here are some basic factors
that system designers must decide on and some guidelines:
All currencies can be analyzed from multiple perspectives of
time periods, ranging from 5-minute (or less) to 1-month (or more). Deciding
which time period to test can drastically affect the performance of the system.
More reliable results generally come from longer time periods, while short
periods can be misleading when judging real market conditions. However, this
does not mean that only extremely long price periods should be used. It is
important to keep in mind that the longer the time period, the longer it may
take for profit to be realized and the BIGGER the Stop Loss shall be (which you
may/may not be able to handle).
This is one of the most important and often confusing aspect where most traders get confused. Some think having a
Stop Loss of 40 pips may be higher risk than 20-25 pips on each trade but we
say NOT necessarily. To trade in Forex, one needs to not only use proper
risk-reward ratio management, but also proper money management.
Suppose you are trading 10$ per pip, and have set a Stop Loss of
about 25 pips on a position you have taken awhile back. Instead of this, if the
person needs to minimize his/her risk and maximize his/her money management
effectiveness, we would suggest for example to play 3-4$ per pip on that trade
and then set the Stop Loss to about 40 pips, if we see that doing this would
increase your chance of not hitting the Stop Loss. In effect, you would have
lost 250$ on stop-out earlier but with our suggestion, you now have lost just
120$-160$ ONLY in that trade. Sometimes smaller profits are better than bigger
profits, if there is lower risk. Of course, there are many more ways to
minimize risk.
A good guru who doesn’t sell too easy methods OR too
expensive methods
Most trainers you would see provide courses, which ultimately lead to a lost of hidden costs and after a lost of hours live trading one-on-one, even then only the TOP 5% actually start making profits. Wouldn’t everyone like to make money, because they spent around 5,000 US$ on a trainings course filled with daily commentary and live chats etc. Of course they would! But they don’t. Wouldn’t us all want a simple system that teaches some particular methods which can be used by almost anyone to trade and profit consistently in Forex rather than spend 49.95 US$ on a cheap e-book which talks “About Forex”, ”1-2-3 Steps of trading”, “Trading Millions easily” or by spending hours learning on the web, spending a cool 5,000$ and then feel tired, down and out daily while trading watching charts. We are so different because our system shall only want you to stay online 1 hour daily, that is it, and then analyze using our system’s steps to generate the signals and trade them.
You shall know and understand fully our system in 1
month or much lesser a time frame, guaranteed.
Our training package has other simple trick(s) than above to minimize risks too, and explained in a very simple manner to top that.
Visit: http://www.genuinefxonline.com for full features.