Forex trading should be broken down into three easy steps in order to succeed in overcoming the complexities and become a consistent and profitable trader.
Trading is a complex and multi-faceted process. Complexity can be overcome by putting in the hours to build a solid system. However, forex is not a pure science. I refer to it as part science and part art. The reason for this is that generally speaking investors are controlled by their emotions. They make investment decisions based on their beliefs, fears, hopes, and lust for profits. If all decisions were made on scientific grounds we may well have an efficient market, but they aren't.
Forex trading should be broken down into three easy steps in order to succeed in overcoming the complexities and become a consistent and profitable trader.
Remove the emotional factor
Individual traders compete against themselves, not the market or other traders. If you are unable to reign in your emotions you will become your own worst enemy. The best way to remove emotion from your trading is to build a detailed trading plan. Your foreign exchange trading plan should outline your objectives, your beliefs and your approach to the market. It will also include details of your trading system. This should be a detailed report on what your exit and entry rules are and your risk management parameters. Once you have completed your trading plan it’s time to build your forex trading system. By building a robust and water-tight trading system you are removing the need to bring emotion into your trading. Without emotions getting in the way of your trading your chances of success will increase dramatically.
Back-test through all market conditions
Next, you will need to test that your system actually works and that it will generate the returns that you are expecting in terms of your trading plan. Be sure to test the risk aspect of your plan. What sort of draw-downs can you expect? Does it generate a steady equity curve?
It is important to note that back testing is only effective if you test in varied market conditions. Test over different time periods and in volatile, quiet, bear and bull markets. This way you will know what to expect from your system in all scenarios. A system that produces superb results in a volatile market may get annihilated in a bear trend. You may need to go back to your system and make a few changes if your back- testing results are unsatisfactory. Back testing your forex trading program will also provide you with the confidence you need to apply it in live market conditions. I always test new systems over the 2008 credit crisis to see how it would have prerformed during those extreme conditions.
Automate your trading plan
Once you are assured that your trading plan will deliver the results that you expect, the final step is to automate the process. I recommend an automated forex trading system as I have seen many great trading plans come to nothing due to incorrect execution in the market. This is due mainly to a trader’s inability to follow their rules, making mistakes, letting emotions dictate their decisions or in some instances to sabotage their own success. Eliminate poor implementation of your forex trading plan by using a forex auto trading system.
I cannot over-emphasise the importance of automating your forex trading in order to ensure that emotion does not play a role in your trading and that your plan is implemented correctly. The only way to really test the robustness of your plan is to build your own automated trading program. This way every trade entry and exit that your system provides will be traded by your system. Forex markets are open 24 hours per day, so it is impossible for you to implement your systems accurately using manual order entry. If you do not follow all the trades that your system identifies, how will you ever know the true extent of the system’s success?
Use these three simple steps to get an edge over forex markets. A well thought out, back-tested trading plan, traded using automated trading software is the answer to successful and consistent trading. After all, trading is about probabilities. Increase your probability of success and you will increase your returns.
Get a Life by Automating Your Trading
After analysing this period in my trading history I discovered that although I had been making more errors, the worst thing about being so tired and anxious was the marked reduction in my ability to remain disciplined in my trading. The more tired a trader is the more difficult it is to follow his trading plan.
Be Responsible for Your Own Trading Success
All traders are unique. There is no one size fits all automated trading system. Build your system based on your beliefs about the markets and according to your trading plan. It’s also easy for the seller of the system to create an unrealistic track record through over optimisation. The system may promise success but fail hopelessly in real world conditions. Blaming the system for your failures is too easy. Take responsibility and build it yourself.
What is the Future of the Markets and How Does Automated Trading Fit In?
Regulation of financial markets is increasing as they become more complex and computer driven. This is to the advantage of small investors who require legislation to protect them from unscrupulous operators and so called insiders. A more regulated environment means a better trading experience for automated forex traders.
