In the beginning I believed that the secret of the profitable trading is in a trading system. I thought that as soon as I found the right system I would start making money in Forex. Later I realized that it was not the system matters but how well it fits your personality. In my experience the best systems for me were the system I have created myself. You can do it too. It’s not a rocket science. All you need is some experience with the charts. Follow the steps outlined bellow to make a profitable system for you.
1. You need to pick a currency pair and a time frame
It is very important to focus on one currency pair and one time frame. It is very rare to see a trading system that would be equally profitable for all currency pairs and all time frames. I believe the choice of the time frame will depend on your trading style. If you are a swing trader then 4-hour or even a daily chart will be the best choice for you. If you are a scalper then 5-minute or even 1-minute chart will suit your trading habits the best.
2. You need to find parameters that generate buy and sell signals
This may seem to be the hardest step but it isn’t. If you study your charts long enough and put any of your favorite indicators or look for your favorite chart patterns you will find easily many patterns that you can use as a signal to buy or to sell the pair. Write down the rules of those signals on paper. The next things you need is to define the rules for stop-loss and take-profit placement. Once you have these rules in place you are ready for the next step.
3. Test your system on the historical data
Most trading platforms come with a significant amount of historical data. What you need to do with the rules of your system is to test it on that data. Go back in time with the data for the currency pair of your choice and start moving forward. As soon as the conditions of your buy or sell rules are satisfied place a horizontal line across the price you would enter the market. Also you need to place lines across take profit and stop loss prices. While you go forward look for the price to hit one of those lines. Write down into a spreadsheet gain or loss for the trade. Continue until you have at least 100 trades tested. Calculate mathematical expectation of your system. If it’s positive you are ready for the next step. If it’s negative you need to go back to step number 2 to find another parameters for your buy and sell signals or refine the existing ones.
4. Test your trading system on a demo account
Now it’s time to test your system in real time. You need to do it on a demo account. As it was with the back testing make at least 100 trades. Don’t worry if it takes long time. Market is always there. It is better to have a profitable system to trade than to lose all your money quickly. If you are satisfied with the results of your system in real time test you are ready to move it into your live trading account.
Albert Schmidt is a part-time currency trader. After quite a long time of struggle he learned to make consistent profit trading in Forex. Review a trading strategy he successfully uses in his trades.