How to Create Forex Trading Systems
Forex trading systems are essential to trading in the forex market successfully. It is important that you realise that the system that works for you may not work for someone else. This means that you need to create a system that suits your skills, trading style and personality. There are certain points you should look at when you start creating forex trading systems to ensure they are tailored to your style of trading.
Your Forex Trading Skills
The first point you have to consider is your skills in trading forex. If you are a new trader then you may feel that you do not have any skills that you could prove. While this may be true is regards to actual trading there are other skills that you have to consider. Some people are naturally good at reading charts and identifying trends. These are skills that should be included in your trading system.
A new trader should consider that they will be going through training that will teach them the basic skills they need. You have to identify the aspects of trading that you understand and can easily see yourself using. These need to be part of your customised trading system.
Preparing for Mental Trading Effects
Forex trading affects traders in different ways and you need to be prepared for the possible mental effects of trading. There are certain emotions that traders commonly feel when they start trading live and your trading system need to compensate for this. The best way to do this is to identify the possible areas where emotions might come up. Your trading system need to have clear stop loss and take profit points to avoid emotionally holding onto a trade or becoming greedy. You also have to set risk management into the system so you limit the effects of fear when trading.
Risk Level in Forex Trading Systems
One of the most important parts of your trading system should be risk levels and risk management. This part of the system will outline what leverage you are able to use, the amount you risk per trade and what an acceptable risk to reward ratio is. Leverage is a very risky part of forex trading and many traders take this too lightly. These traders think only about the profits that they could make with leverage and not the amount they could lose. Set a leverage amount that you will use and stick to it. The amount you risk per trade should not be more than 2% of your account balance. Any more than this could lead to problems if you hit a losing streak.
Outline Your Goals
Another important part of your trading system is the outlining of your goals. You should detail your short-term and long-term goals in your system. The goals that you set should not be purely monetary and this is where most traders go wrong. The goals should help you become consistent in your trading and keep to your risk and reward ratio. If you are not being consistent then you should not be able to reach your goals. Once you have become consistent in your trading, then you can include monetary based goals in your trading system.