Why use the forex trading system?
Remember that trading strategies in Forex are the tool by which most traders succeed. Only a few play plus in one flair. Read for example this 1000pip Climber System review to learn about successful system.
Why is it necessary to study other people's trading systems?
Forex is a market with a lot of players and a lot of rules, and you can not develop your own, if you do not understand the logic of building systems of successful traders. For the success of any Forex strategy, you need testing, honing and following its rules when making decisions.
This section of the tutorial will tell you how the Forex trading system is formed, what it gives and why creating a personal forex strategy is a necessary step on the road to professionalism.
How to learn to use trading strategies?
Consider the most famous trading strategies of the market. Find out what the success of the strategy depends on and why even the most efficient and profitable trading system, proven by time, in inept hands can become a weapon of ruin.
Traditionally, it is customary to distinguish two types of trade on the market: intuitive (or chaotic) and systemic. For all traders, with the exception of units, system trading yields significantly better results than intuitive ones.
The point is that intuitive trading involves subjective decisions that are often hasty and rash, and therefore lead to losses. Affect, insecurity, greed and fear easily supplant knowledge and reason in the role of a trading force. Yes, and agree, it is very difficult to test or check the trading method, where there are no strict rules for decision-making. In turn, system trading is based on a specific trading system (TS), which is a set of rules for making transactions. According to these rules, the trader decides whether to open or close one or another position.
And with strict implementation of the rules, the trading system becomes objective, there is no room for emotion. As a result, it allows you to achieve clarity in the work, to avoid the emergence of all sorts of surprises, to remove psychological stress and, finally, to make a profit.
An important feature of the trading system is a clear and unambiguous formulation of its set of rules in the form of an algorithm that will allow trading in a completely objective manner without human intervention.
To be complete, the system should provide the following information:
1. Conditions for entering the market (when, how and at what price to open a position);
2. conditions for exit from the market with a loss (when, how and at what price to close the loss-making position);
3. conditions for exit from the market with a profit (when, how and at what price to close a profitable position).
Note that it is not always necessary to develop your new trading system. The community of traders excellently worked on various approaches to the market. Trading systems for "any taste and color" are scattered on the Internet, are set out in books, articles and discussions on forums. As practice shows, every trader needs his own personal trading system that meets his trading preferences and desires. This is proved by the fact that an effective trading system for one trader may be completely unacceptable for another. Even if the trader initially takes the "foreign" trading system, then in the process of work, he makes his own personal adjustments and additions to its rules. Sometimes they are so serious that only a small part remains of the original version.
Next, we described the methodology for creating our own trading systems. First, let's look at the basic principles of building trading systems. Their importance lies in the fact that the trading system is not corresponding to them, most likely, will be ineffective. Next, we list the main elements of any trading system with recommendations for their proper formation. In the last part, consider an example of a trading system.
When studying the work of different authors studying the problems of developing trading systems, you can find similar recommendations. It is these recommendations (by virtue of their great importance) that it is expedient to use as a "foundation" for any trading system. By right they can be called the principles of building trading systems.
The results he obtained confirm that, with an increase in the number of rules, the profitability of the system first increases (if the rules are reasonable), and then begins to decline due to the reduction in the number of transactions. The reason is that too few situations on the market will respond to a combination of new and new rules. In this sense, each new rule acts as another filter, through which not all transactions "pass". In addition, more data will be required to work on these rules.
Another interesting fact is connected with the parameter of any trading system - the maximum drawdown or the maximum growing loss (MIDD - Maximum Intraday Drawdown). It denotes the largest amount of continuous losses that the trading system issued for the entire known period of work. So, with an increase in the number of rules, the maximally growing loss also initially grows, which is apparently due to the falling reliability of the forecast due to the growth in the number of variables. Then, with the fall in the number of transactions, the growing loss also begins to fall, but more slowly than the total profit.
Hence the conclusion: if you enter rules to exclude unprofitable trades, you need to monitor whether profitable trades are also excluded.
Thus, an excessive increase in the number of rules (complicating the system) to achieve greater efficiency of the trading system does not lead.
