You Have To Find A Foreign Exchange Trading System That Suits Your Trading Style

You Have To Find A Foreign Exchange Trading System That Suits Your Trading Style

Every successful trader has a winning foreign exchange trading system. If you ask them, they might tell you they have the best foreign exchange trading system out there. And they would have the best one, for them. But there are as many ‘best’ foreign exchange trading system out there as there are traders, and no two of them are alike. Some traders buy on strength and sell on weakness; others do the opposite.

Investors like Warren Buffett succeed with a “buy and hold” foreign exchange trading system, where they purchase value to realize long-term gains. Other traders buy and sell constantly, seeking to make money off of short-term trends or momentum.

There are many ways to profit from the markets. But there is one common trait that all successful traders have: they approach trading in a systematic way. By “systematic,” I mean they have developed a foreign exchange trading system that is effective for them, and they follow that foreign exchange trading system. The foreign exchange trading system may evolve and adapt over time, based on experience and lessons learned from past mistakes, but it will never fluctuate in the heat of the moment.

Your foreign exchange trading system must fit your personality in order for you to be successful. Good traders succeed because they develop a foreign exchange trading system they feel comfortable with and that provides them with proven, long-term results. They develop a methodology that maximizes their strengths and minimizes their weaknesses, one they can put their trust in and follow consistently. You might be wondering how you can do the same.

Since every investor is different, the first thing you need to do to develop your foreign exchange trading system is take into account your present situation. You’ll need to ask yourself a few questions about your needs and your abilities as a trader. Consider whether you need cash flow or capital growth. If you’re a part-time trader with other sources of income, you may simply wish to grow your capital. If you’re trading professionally, and your sole income is from trading, then cash flow is critical to you because you need the profits to live on.

Also think about the amount of time you are able to devote to your foreign exchange trading system. Can you trade part time or full time? If you’re new to trading, or don’t have a lot of capital, part-time trading is a great way to learn, grow your skills, and develop a foreign exchange trading system. If you have sufficient capital to invest, and are confident in your abilities, fulltime trading may be right for you.

Next, determine how much capital you can invest in your foreign exchange trading system. There are two parts to this: one, how much capital do you have, and two, how much are you willing to risk? You should not risk more money than you’re comfortable with. Doing so will affect your foreign exchange trading system and cause you to make mistakes. If you’re risking too much, nervousness and fear can affect your decision-making and cause you to make avoidable errors. Only invest as much capital into your foreign exchange trading system as you can feel calm about – as your confidence grows, the amount of capital you’re willing to invest will grow, too.

And last, consider how much of a return you want on your investment, and how much risk you are comfortable with. A higher rate of return generally means a higher risk. If you want a 5 or 10% annual return, your foreign exchange trading system will be much more conservative than someone who seeks double or even triple-digit returns.

For example, if your goal is cash flow and low risk, buying or selling at extreme levels is not the right style to adopt. If your goal is to quickly grow your capital, and you can accept the high level of risk that can come with high returns, then buying distressed stocks, taking a contrarian approach, or gap trading may be a foreign exchange trading system for you.

A trader and a foreign exchange trading system run the gamut from aggressive day traders looking to profit from small point gains, to value investors looking to capitalize on long-term economic trends. In between, there are a wide range of combinations of their foreign exchange trading system and risk levels. Once you have found the foreign exchange trading system that fits you, you will be well on your way to developing a system for success in the markets.

trading tips

A question recently came up in regards to the impact of news on trading performance. The questioner was feeling a bit overwhelmed with the idea of trying to deal with all of the different sources of potentially impactful news and information that hits the markets. Let me share some thoughts on the subject.

Firstly, I can completely understand how mind-boggling it can be. There is seemingly a constant stream of data coming out. Forex traders in particular see loads of it each day as the various major industrialized countries put forth economic data and have prominent speakers on the schedule. Then too there are any number of things that can crop up anywhere in the world related to gold or oil, for example.

Here’s the first thing I would say in that regard.

It is possible to narrow significantly the list of scheduled items that are likely to have a significant impact on the market you trade. Clearly, a stock trader has to worry about earnings reports, but retail sales data may be completely meaningless. A forex trader has to worry about things like trade, but won’t concern themself much with corporate earnings. An interest rate trader will certainly keep an eye on employment figures, but won’t worry as much about the speach by the head of the European Central Bank.

The implication is that you can generally pick and choose the calendar events that you need to focus on for your trading. Of course there are always going to be surprise events that happen, but you can only deal with that though a generally solid risk management approach.

Now, once you have identified the data releases and other events that are meaningful to the market you trade there are three ways to trade in relation to them.

1) Take positions ahead of the releases, speach, or whatever.
This is basically gambling and not recommended.

2) Make sure that you are flat ahead of the aforementioned events.
For most short-term traders this is generally the best approach. It keeps one out of the wildness that can come with unexpected results. That volatility makes meaningful trading very challenging, and not very profitable for most people. The majority of folks are better off waiting to see how the market settles out afterwards.

3) Trade in a timeframe for which the kind of intraday swings created by news events are of no significant impact.
This generally means taking on positions with relatively wide stops that are expected to be held for at least several days, if not weeks or more. The approach here is to play the bigger price movements with the view that intraday swings are just blips.

You personal trading style will dictate the approach you take.

One other thing I would add in comes in the area of trading systems and their performance around news events. If a system has been tested over a sufficiently large data set relative to the timeframe it trades then that means it would include any number of data releases and other news items, and thus their impact on prices. As such, the user of such a system, if the performance is deemed solid, should not concern themself over much with releases. They are, essentially, factored in to the system’s performance.

Secret to Trading Success

If you’re reading this blog post because you actually think there is some one thing that successful traders know that unsuccessful ones don’t, then let me first say:

There is no single secret to successful trading!

And by that I mean there is no secret wisdom passed down from master to pupil, or sacred texts sharing with readers the knowledge of the ancient masters. The idea that some traders are using secret techniques which ensure their trading success and that without those secrets one cannot possibly trade well is farcical. That simply isn’t the way of things. Sorry to disappoint you if that was your thinking.

Trading success comes from developing for yourself a good, well thought-out trading plan. That’s a plan which is based on your personal needs, strengths, interests, and all of that. This is something which takes time. It will not happen in one day. It takes exploring and learning.

You will often hear from successful traders that it took them a couple of years before they really found their feet trading. I know that was certainly my own case. You try things. Some work and some don’t, and you make adjustments.

Remember, though, that a trading system is not a trading plan. It’s only part of one. (see the series of articles I wrote about building a trading plan starting with Creating Your Own Trading Plan.)

Trading success also comes from being consistent. That means repetitively applying your trading plan over and over and over again. That probably sounds pretty boring, but the truth of the matter is that good trading quite often isn’t the most stimulating thing in the world – at least in terms of the execution.

Both elements of this are equally important. Not having a well developed plan will mean failure just as not sticking to that plan will. As Brett Steenbarger recently wrote in his blog:

“It’s a common observation that traders fail because they don’t stick to their plans. My experience is different. Traders develop plans and trade patterns that simply don’t work; they’re based on randomness. When the patterns don’t work, traders become frustrated and abandon their plans. So it looks like lack of discipline causes trading failure. But planning doesn’t create success; sound planning does. Sticking to plans based on randomness is no virtue.”

And it most definitely doesn’t stop there. Another secret to successful trading is that you must never stop learning. Steenbarger noted “The successful traders have a passion for markets, which is very different from a passion for trading.” and that ”The ratio of “practice” time (time spent on markets outside of trading) to trading time is a worthwhile indicator of a trader’s prospective success.” From a system trader’s perspective, Bill Rempel added “System development and testing never stops.”

Markets change and you must adapt to survive.

Actually, it all reminds of a movie that most likely you’ve never even heard of - A Circle of Iron. It’s based on a script written by Bruce Lee with David Carradine one of the lead actors. The hero goes on a quest to find the Book of All Knowledge. Of course he must overcome many challenges to find it. When he finally gets to read the book (spoiler coming!) he finds that it’s nothing but mirrors. It’s all very Zen, of course, but the lesson that the secret lies with you is very much the point I’m trying to make here.

So there you have the secret to winning in the markets.a