Component of the Best Forex Trading Systems

Foreign Exchange trading otherwise popularly know as “Forex Trading” or “Fx Trading” can account for relatively substantial profits or losses depending on a couple of factors. With statistics showing that about 98% of Currency Traders burn their trading accounts and only 2% making a living off of trading full time or part time, trading is definitely not a business you would want to rush into blindly without the proper education and mentoring required. You need to have an edge an added advantage you’ll use to exploit the enormous profit potential of the currency trading markets with the Best Forex Trading System you can use. 

Below I talk about some of the vital components required to build a profitable Forex Trading System in great detail. For a trading plan to be successful you’ll have to be disciplined in following the rules of the trading system and also pay great attention to the components it relates to such as the trading session and the average daily range of a particular currency pair within that session and also the money management rules among a host of other things. I am sure that if you follow this guide with a positive attitude and do not give in to your emotions you will be profitable. The only question is “Will you take action and not fall prey to the No. 1 enemy of your trading success, your Emotions?”

The 3 M’s Of A Forex Trading System

There are what I like to call the 3 M’s of any trading plan that must be satisfied unconditionally in order to have a profitable and successful trading system, whether it’s the Forex market, Stocks Market, Futures market or the Options Market, it doesn’t matter these 3 M’s must be respected, and the 3 M’s are;

A.                 Mind

B.                 Money

C.                 Methodology 

A.                Mind

The mind is so strong, so powerful that whatever you feed into it or conceive, whether consciously or subconsciously, it wields the body to doing actions that will convey those thoughts into reality. You might be wondering what this has to do with a Forex trading system, ok here, if you think you are a terrible trader in truth your mind will work with your body in making that thought a reality by helping you make poor trading decisions, loosing trades that would have turned out profitable and confirming the negative emotions born from within.

The worst emotions traders can take to their trading room are emotions of anxiety, greed, fear and revenge, you have got to have a positive attitude towards your trading decisions, you have to believe in yourself because if you believe that you are a good trader, the best trader in the world in fact, with the other proper ingredients you are one step ahead of the loosing majority that make up the crowd in the foreign exchange market. Be humble nonetheless do not allow pride to get the better side of you.

B.                Money

     

With the mind in a positive state, another very important component of a profitable Forex trading system is money management. Even though the currency market has the potential to make for substantial profits to reward it’s investors, there is also the risk of loosing every penny of your hard earned money if you do not know what you are doing to begin with. 

There are two rules I use to govern my money management principles and I talk about them in-depth in the sub headings to follow, and they are;

I.                    The 2% Rule

Observing this rule helps me ensure that I never risk more than 2% of my trading account balance on any single trade. For instance, if I have an account balance of a $1000 I would not risk more than $20 on any single trade. 

This helps to considerably reduce the fear and emotions attached to any given trade because most newbie traders happen to risk their entire accounts on a single trade, most never place stop losses because they do not want to get stopped out of the market only for price to move in the direction they had anticipated like it did on their last loosing trade, thus incurring significant loses and a huge dent in the confidence they’ve built in their Forex trading systems. 

They tend to get excited about every tick the market makes against their trading positions, knowing the next tick might just be the one that’ll burn down their entire trading account. No matter how certain you are of a potential move and how many indicators agree with your trading judgement, never risk more than 2% of your account balance on any single trade, Forex trading is a game of preserving capital, never let a single trade decide your future as a Forex trader.''

II.                  The 6% Rule

The 6% rule helps me make sure I never risk more than 6% of my trading account balance on any given trading day. Just like in the earlier example, If I had a $1000 account balance I would not risk more than $60 on all my open trades in any given trading day, so that I can limit my total exposure to just 6% of my trading account balance. 

So if I spot 6 trading setups on 6 different currency pairs, according to my Forex Trading Strategy I will either decide to cut down my risk per trade to 1% of my trading account balance and take all six trades, or I would just take three trades leaving my risk per trade to the usual 2% as stated in my trading plan.

If I am having an awful trading day the worst that could happen would be loosing just 6% of my account balance which is $60 as in the above example. This rule helps to take out the fear of loosing my entire trading account on a single trade or in any given trading day however bad it gets, if today is a bad trading day, I still live to trade and make up for losses tomorrow. That’s as simple as it gets.

These rules are very important and invaluable assets in my Forex trading arsenal, follow them religiously if you want to be a profitable and professional Forex Trader.

C.                 Methodology

The third component of an ideal Forex Trading System is the Trading methodology you use to spot trade setups, entry and exit levels and also how to manage an open position, not just opening a trading positions and just setting up profits targets and stop loss levels and waiting for one of them to get hit, you have to continually move your stops when a position is profitable to maximize profits and limit losses as fast as possible. 

A Forex trading methodology covers in great detail the approach and methods used by professional Forex traders to guide their every step in the thought process before opening a trading position and not giving in to emotional trading which is very dangerous.

This covers the technical indicators used by a trader, the time frames they use to identify trade setups, chart patterns and trading styles whether conservative or aggressive, how they determine support and resistance levels and the list goes on and on and on. 

A classic example of a profitable Forex trading methodology I use to rake in handsome profits consistently every month is covered in great detail in the article I wrote titled My Winning Forex Trading Strategies and Techniques.

SIMPLICITY

            Most profitable Forex trading systems are very simple to follow and easy to implement. It is my experience that the easy to follow Forex trading systems in most cases delivers more than the complicated Forex trading systems out there.

            If you are just starting out trading or you happen to be an intermediate trader not happy with your trading results, I advice that you follow the 3-2-1 Rule, which states that you use only 3 technical indicators, 2 time frames  and 1 currency pair. As you get better at trading you can add more pairs to your trading plan. There is absolutely no need to rush in this; the market was here before you came it will long remain after you’re gone. You should never clutter your chart as that will only make you loose concentration of the most important out thing which is “Price”.

 CONFIDENCE

            When learning how to drive a car, most times we feel overwhelmed by the number of things we have to focus on, the gears, the gas pedal, clutch, brakes, rear mirror, side mirrors, steering wheels and all. But as time goes by things get a whole lot easier because we do not require to strenuously focus our attention on every bit of detail, because it becomes sort of a reflex.

            In acquiring the proper education for trading the Currency markets, it’s no different. When it comes to using a Forex trading system with a track record of success, at first following the trading system and spotting profitable trade setups will prove to be a bit difficult but as time gets by you’ll get better at it because just like with the driving example above, it becomes sort of a reflex to spot trades making the whole trading process a mechanical.

            The logic behind demo trading for a couple of months, being that as you place a couple of trades using a profitable Forex trading system, you gain experience trading the system and you get to see for yourself first hand that your trading system works so that when you go on to trading live with real money you must have gained some trust in your system to deliver and not second guess your trade setups because of trading emotions.

FOREX TRADING SESSION

          Another very important component of a profitable Forex trading system is the Forex trading sessions I personally prefer to trade the European session because it is known to constitute the highest volatility. 

I would recommend that if you are just starting out trading you should try as much as possible to trade the London session specifically, because it is has a lot of price movement and trading currency pairs like the EUR/USD is much more easier and newbie friendly in my honest opinion, because of the high trading volume (liquidity) and also the fairly consistent predictable patterns.

So pay very close attention to the sessions you intend to trade and account for it in your trading plan, ok guys?

ALWAYS KNOW WHAT YOU’RE DOING

            There is no greater risk than not knowing what you’re doing, and in a business like the Forex, where you’re actually trading against heavily capitalized banks and financial institutions with an endless army of professional traders who do nothing but trade full-time for a living for the big banks, there couldn’t be more dangerous sharks waiting to feast on your hard earned cash, if you don’t get armed with the proper guidance and trading education.

            You must have an edge an added advantage you’ll need to capitalize on, to maximize profitability from your trading endeavours. If you are serious about trading profitably and you can afford to take this a step further I would recommend that you sign up for a one-on-one intensive lead by hand Forex trading mentorship program and invest in your trading education and reap the rewards later with the financial freedom and the leisurely life style you’ve always dreamt of.   

            This will considerably shorten the learning curve and get you on the path to making a full time income from the Forex markets in half the time. You mentor must have made the mistake, saving you the emotional trauma and pain of loosing your hard earned money, sifting through all the noise and hype in the Forex education industry. 

PROFTABLE TARCK RECORD

            Any Forex trading system you choose to use in your trading career must have a track record of success of at least 60% winning trade. This is very important. When you use a Forex trading system with a high track record of success you’ll emerge profitable even if you have a high number of loosing trades because your risk to reward ratio will ensure that you that is taken care of.

      


      You do not want to be using a system with a lot of whipsaws and false trading signals because that will only frustrate your trading efforts. If you’re thinking of creating your own Forex trading system from scratch you will need to test it rigorously before concluding that it might be profitable or not otherwise just learn from a Forex trading mentor who is already successful at trading and have him take you by the hand and show how they trade over the shoulder style, until you are good enough to trade on your own having acquired a great deal of experience trading the Forex Markets.

CONFLUENCE OF EVENTS

            Never make trading decisions just because one technical indicator says to, always wait for other indicators to agree on the probable outcome you’re anticipating. For instance when you have a MACD divergence signalling a weakness in momentum of price you always want other indicators to agree with this such as a hammer candlestick, a doji, hanging man, and also a trendline breach near a round figure support or resistance level. 

If all this sounds new to you can check the detailed article I wrote explaining exactly how I trade titled “My Best Winning Forex Trading Strategies and Techniques”. Always look for a confluence of events signalling a trade setup before jumping into the market to have a share of the big pie.

CUTTING YOUR LOSSES SHORT AND LETTING YOUR PROFITS SOAR

   

         You should always have a strategy for placing stop losses and profit targets suitable to your style of trading. Depending on the system you are using there are a lot of different ways to determine stop losses and profit targets for maximum gains and smaller losses. 

I usually place my stop losses about 20-30 pips above the most recent swing high or swing low as the case warrants, then I trail my stop following the market as it moves in my favour every 20 pips in profits to let my profits run.

Never adjust your stops hoping that the market will stop moving against you to reverse and turn in your direction that will be trading based on nothing but hoping, wishing and praying and that only results to fear and irrational trading decisions, that my friend is emotional trading in its finest. 

Observe a very strict money management principle with a profitable Forex trading system, focus, commitment and dedication and you will do just fine. Remember always cut your losses short and let your profits run, trading is a game of preserving capital and living to trade the next day not a one hit wonder type of business. Don’t forget to read my article on how to trade with “My Best Winning Forex Trading Strategies and Techniques”.

I hope you found this post informative, ask any questions you might have and I’ll be glad to help, don’t forget to share this with your friends. Am looking forward to hearing your comments and suggestions ok…? Let’s interact and share trading ideas and thoughts. Thank for reading guys.

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Yours in pips harmony,

Anas Abba (Forex Coach)