Choosing the Best Forex System - A Few Things to Consider
Choosing the Best Forex System - A Few Things to Consider
So many traders spend months, years, and even longer trying to find the best forex system. It is so easy to get caught up in the latest and greatest trading strategy - especially when you keep losing money. One situation that many individuals who are considering entering the foreign exchange market get into is called "paralysis of analysis." This is when they have so many options that they just can't pull the trigger on any one forex system. Instead, they spend more of their time researching one system after another, but never actually trying any of them. Don't fall into this mindset.
Let's be real clear here - no system in the world will make you money in the currency markets. Only you can make money by how you use the trading system. Two people can trade the exact same system and one person will make money while the other might not. The forex system that you choose is simply a tool. And with any tool (a hammer, paintbrush, computer, etc), it's how you use the tool that will truly determine your success.
The currency markets are a living organism, and no system can tame it. However, the best forex systems are able to track these changes adequately and quickly. Most systems don't, which is why it is so difficult to find a trading strategy that consistently works.
But here are some pointers when it comes to finding the best forex system.
Any trading system must consider what is happening in the world economy. There are definite reasons why currencies move so drastically. Interest rates, economic reports, political news - any of these things can cause major trends in the foreign exchange.
Your system (or really you) needs to be aware of these reasons. If you are trying to trade with a system that only cares about charts and indicators, it is going to be difficult for you to consistently make money.
Secondly, your system must pay attention to technical indicators. You don't have to be an expert in Fibonacci levels, fractals, and stochastics, but you definitely must understand the basics. Understand and use the most popular moving averages, trend lines, and support and resistance levels. Combining basic technical indicators with basic fundamental knowledge is the basics to any great forex trading system.
Finally, any consistently profitable trading system must have good risk to reward ratios. What does this mean?
It means that your profit target should always exceed your stop loss. So if you set your stop loss at 50 pips, your profit must be at least 50 pips. Now you can't just arbitrarily set the 50 pip target - there has to be a reason for you to believe the market will actually move 50 pips in your direction.
This means that just because there is a good trading setup doesn't mean that you should enter the trade. First, you must have reasons to believe that the price will move to your target before reaching your stop loss. If your risk / reward ratio is not good, don't trade regardless of how good the setup may be.
Choosing the best forex system doesn't have to be difficult if you take into consideration the factors I talked about. But the most important point to remember is that any forex trading system that you use is just a tool. It is your actions that will ultimately dictate how profitable you will be with trading the forex.
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