If you spend any time at all in Forex (FX) trading forums you'll see constant questions like: "What's the best FX trading system?, what's the best free Forex trading system, or where do I find good Forex trading signals?" There are so many expert advisors (EAs), indicators, and systems available that it's nearly impossible for a novice trader to find a decent FX trading system, or one that produced consistent results. Still, given a little information, traders should be able to identify a system that will work for them. Any FX trading system worth following will have four traits:
The FX trading system will trade with the long term trend.
The system will provide inflexible rules.
The FX trading system will use a very limited set of indicators and will rely on an easily identified setup.
Finally, the ideal FX trading system will provide a positive financial edge.
Whether you are trading stock, commodities, or a Forex market, following the overall trend should be your first priority. Trading against the trend might get you a few winning trades, but a prudent trader sticks with the overall trend. Chasing retracements is okay if you want a rush. If you want to make money, you need to manage your trading like a business. That means that we make purchases at a lower price than the projected sale price. Counter trend trading goes against that rule. There are several methods for determining a trend. I recommend the Blue Zone, or a similar method for determining the health of a trend.
The ideal FX trading system will provide you with an iron clad set of rules for trading. Your trading results will be tightly correlated to your adherence to rules. When selecting a trading system, make sure you can live with the rules. If you cannot, find another system. If you find that your emotions will not allow you to follow these rules, find another way to make money. A system will only work if you use it correctly and consistently.
When reviewing messages in the Forex trading forums, you'll often see charts. Some of these charts are so covered with indicators that you can hardly see the price action! The best FX trading system will only use a couple of indicators. The Blue Zone system, as an example, only uses three simple moving averages (SMAs). It uses these to determine the health of the trend. The best FX trading systems will couple these few indicators with setups that are incredibly simple and easy to identify. There are systems that use ascending triangles, multi-candle setups, and complicated crossovers. Those are just too complicated to be of much value, and in my opinion, lack consistency. The Blue Zone system uses a single candle setup. This single candle is highly predictive of reversals and will provide consistent results. Of course you have to know which times to trade it.
Finally, any FX trading system can be judged on one metric alone, the Financial Edge. Financial edge is a simple formula. It states: E= (AW*PW) - (AL*PL)
Or, in English it states Edge equals the difference between the average winner times the probability of winning and the average loser times the probability of a loss.
Example System:
Average Winner: 200 pips
Probability of win: 15%
Average Loser: 25 pips
Probability of loss: 85%
Edge = 8.75 pips.
The above example illustrates how important edge is and how unimportant percentage of winning is. We only won 15% of the time in the above example. Using the system consistently, however, would give us nearly 9 pips per trade! Our goal in Forex trading is not to win more often. Our goal is not to win at all. Our goal is to make money. The sooner this is learned, the better.
When reviewing the numerous systems available for Forex trading, if you remember the preceding facts, you'll be well on your way to finding or developing the perfect FX trading system.
If you want more information regarding Forex trading systems, including the Blue Zone system, stop by the No Nonsense Trader Blog. Read fair and impartial reviews of systems and tools, gt the latest GAP trade calls, and sign up for a Free Forex Trading Course
Article Source: http://EzineArticles.com/?expert=Tim_Barnby
http://ezinearticles.com/?FX-Trading-System---Evaluation-and-Selection&id=2077873
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