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How to Develop Your Own Profitable Forex Trading System

Apr 5, 2008
If you do an Internet search on the keywords "Forex trading systems", just about any search engine is going to bring up every conceivable scheme under the sun as to what makes the perfect trading system.

Most of these are scams that state you can make big profits every day, and they also promise that you'll never lose a trade. What's the catch? This "foolproof" system will cost you just $5,000. Of course, that's a lot of money even for a foolproof system, but worse than that, this is most likely a scam. Why?

First of all, it's not true that you'll never make a losing trade, no matter how good you get at doing trades. That alone should make you turn the other way and run. Second of all, if these people are so rich from their trading secrets, why are they selling you their secrets for $5,000? Unquestionably, they make their money from selling you their "secrets," and nothing else.

It may be true that these systems to work in some cases, but better yet, you can develop your own personal trading system so that you know exactly what you're doing -- and you don't have to spend a penny beyond funding your own trading account. So, take that $5,000 and find your trading account instead. Develop your own trading system by using a free demo account so that it's not going to cost you anything until you've got your system down.

Now, you can't expect to come out on top for every single one of your trades, but you can certainly do more profitable trades than losing ones, which in turn will earn you a profit overall. And it's not difficult to develop your own profitable trading system, either. What is difficult at times is that you stick to your system over the long term. This is where inexperienced traders fall short versus experienced ones.

Simply put, any trading system's main aim is to identify trends as early as possible so that you get maximum advantage from them. At the same time, you want to avoid false trends and blips, wherein the market will either stand still or even go against you. The earlier you catch onto a trend, the more likely it is to be a false one. However, it's also a shortcoming if you wait until you are certain of your trend before you start trading, because then the market will be much more likely to stand still or move against you.

How, then, can you identify trends early enough to be profitable for you and yet still be reliable? Look at moving averages. Use two moving averages: a fast moving average (meaning you average over a small number of time periods, such as five time periods) and a slow moving average, where you average over a larger number of time periods, such as 10). Plot each of these on the same chart together and look to see where they cross over each other.

This is your "moving average crossover" system. When you've identified something that you think is a trend, confirm it by looking at other market indicators, in addition to moving averages. If you use at least two different indicators, this will help you avoid false trends or other erroneous indicators.

Decide beforehand how much you can afford to lose on a particular trade; this is more important than determining how much profit you want to earn. This is because not doing so may very well cause you to lose much more money than you're prepared to, which is where forex trading can become harmful.

You have to be prepared to have a least some losses, and you have to know how much those can be. Once you've decided how much you can lose, set up a stop loss order. Then, decide at what price you are going to open your trade and what price you are going to close it at in order to get maximum profit. Remember that you need to stick to this no matter what happens -- even if the trade moves against you.

By developing your own successful trading system, you can have consistent profits. You need to do this by doing demo trading first until you are comfortable with the system and know what it can do for you. Don't be influenced by your emotions and make sure that you can afford what you are inevitably going to lose on occasion.

Once you have gotten your own system down, write it down so that you have a record of this for yourself. You should also write down your stop-loss amount, such as if the price falls by 30 pips, and when you'll close your trade, such as if it rises by 50 pips.

Stick to your system consistently, and you should have success. Remember that no trading system works for you unless you have the discipline to stick to it.
About the Author
Ian Armstrong is an avid Forex enthusiast.

Some of the most popular trading systems have been objectively reviewed - based on actual performance - at Forex Trading System Reviews
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