The Characteristics Of A Profitable Forex Trading System | ForexGen

It’’s not easy trying to come up with a successful forex trading system. In fact some people never manage to do so and end up losing lots of money. Other people find success through buying a commercial trading system or learning how to trade from a mentor or professional trader. So what are the characteristics of a profitable forex trading system?

Well everyone’’s system is different and unique in it’’s own way but a lot of the most profitable trading systems share the same qualities. The first of these qualities is repetition. The best systems find the same types of high probability set-ups and trade them over and over again.

This is the reason why technical analysis is used by so many forex traders to make trading decisions. Technical analysis is basically a way of displaying various trading patterns, so by finding a combination of technical indicators that are good at predicting future price moves, you can use these indicators to display these reoccurring and potentially profitable trading patterns.

Forex trading should be like a full-time job where you trade the same system every single day. Every trade should be like the preceding one, and there should be very little difference between one trade and the next. You need to develop a system that can detect future price moves with a reasonable success rate and then simply stick to this system all the time.

Another characteristic of a profitable trading system is that they will nearly always use solid money management rules. So they will only risk a small percentage of their bank on any one trade. A good system also generally applies strict stop loss rules and will target price moves that are further away than this stop loss level. This means that you can still make money from a particular trading system even if you have a modest win/loss ratio because your winning trades more than make up for your losing ones.

Some of the most profitable systems go one step further and will use a strict stop loss, but instead of having a fixed target price for exiting a trade, they will let their winning trades run for as long as possible with the use of a trailing stop. This is another way that people make money from forex trading without necessarily having a very high win/loss ratio.

So overall a profitable forex trading system will generally use a tight stop loss policy and will either have a greater profit objective or will let their winning trades run. They also trade the same trading patterns over and over again and do not deviate from this strategy.

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Forex Candlesticks And Their Effectiveness At Predicting Price Moves | ForexGen Academy

Candlestick charts are used by a lot of forex traders when trading the markets and are generally seen as being more effective than bar charts. This is because they provide a little bit more information and can themselves act as a useful signal provider.

Forex candlesticks should not really be used in isolation to make trading decisions but when combined with specific technical indicators they can be very effective at predicting turning points or breakouts. In fact candlesticks are an excellent way of providing a trader with additional confirmation of a price move and act as a way of enforcing what other technical indicators are already saying.

Candlestick analysis is very popular but it is quite a complex subject so before I discuss which trading patterns are most useful, let me first of all discuss what a candlestick actually is.

When you plot a candlestick chart each individual candle basically represents what happened to the price of a currency during a particular time period. The body of the candle shows the opening and closing price and the two wicks show the high and low points during that period. A green candle indicates a bullish candle where the price rose and a red candle signifies a period where the closing price was lower than the opening price.

There’’s nothing revolutionary in this but the strong signals come when you start to see specific candlestick patterns. There are numerous different trading patterns to look out for, each of which has it’’s own specific meaning, but let me discuss a few of the more common candlestick patterns.

The first of which is hammer and hanging man patterns. Both of these look the same - a small body with a long wick hanging down from this body which is two or three times the length of the body. A hammer is present during a downtrend and a hanging man is present during an uptrend and both of them are good indicators that a reversal could be about to take place.

Another strong pattern is when you get a lot of consecutive small bars followed by one large bar. This is a good sign that a breakout is underway either upwards or downwards depending on the colour of the candle.

These are just a few candlestick patterns you should familiarise yourself with but there are lots more that you should learn. Candlestick patterns, when combined with other technical indicators, can be very effective at predicting price moves and are generally more useful than the basic bar charts that a lot of forex traders use.

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Forex Day Trading - Why You Should Not Try This | ForexGen

You”re staying at the beach house working in your office, calm and collected as you collect the profit from yet another successful day trade is debited to your account.

Your kids rush in and you take a break and head outside to play in the sand since you just made another small and easy fortune while those suckers at the office are working harder for less. It’’s a nice picture isn”t it?

If this imaginary scenario sounds familiar, it’’s because there are probably half a dozen commercials on the television at all times of the day showing scenes like this to encourage people to get into day trading the Forex market, usually through signing up with a certain company or buying an expensive tutorial that is supposed to make beating the Forex market as easy as getting out of bed in the morning and turning on the computer.

So in danger of making myself unpopular, here’’s the stark truth of the matter: most traders should not try day trading. Day trading the Forex might be trendy, but it’’s not nearly as easy or profitable as these advertisements would like you to believe.

Day trading is an advanced form of currency trading, and often involves many shorter term trades. In fact, many Forex traders argue that turning a profit on day trading is one of the most difficult things to do in the Forex market.

There are literally hundreds of stories out there of smart, educated, sophisticated traders who went to day trading and proceeded to lose a fortune.

In my opinion, most traders would be better served learning to trade on the longer term trends that the Forex market has to offer. Not only does this allow you more data and time to analyze the developing trends in the market, but there is a lot more money to be made by being on the right side of a huge market breakthrough than by being right on even dozens of day trades.

If you”re good enough to make money day trading, why wouldn”t you learn to trade the parts of the Forex that offer bigger profits and less risk (although let me note, there is always major risk in trading Forex)?

While some traders will undoubtedly want to day trade, for most traders the real chance at making a living at the Forex revolves around the long term trades.

Learn to trade long term. That’’s where the money is, and that can help you to avoid many of the scams and heartbreak that’’s out there.

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Time of Day in Forex Trading | ForexGen

One of the most important highlights of the forex market is that it is a 24 hour market.
Trading never stops, except on weekends of course. As the sun moves from one part of the world to another, so does action in the forex market.

This is a key factor to consider when designing a forex trading system or method. Depending on the period of the day you are trading in the market behaves differently.

Let’’s look at some charts that will help you better understand this issue.

The following is a 5 minute bar chart of the EUR/USD pair. What is the dominating characteristic in this chart?

***chart***

Not hard to spot. Here we can see that the pair is simply moving sideways hence forming a range. More importantly, you can clearly see that the pair is moving not more than 7-8 pips from side to side. So, not only does the pair move in a range,
but a narrow range.

Why is this? Why is the EUR/USD moving in such a narrow range? Very simple question for a very simple answer: This is because the above chart represents market action that happened within the Asian session. It is no a rule written on stone, but as forex traders we know that the Asian session means low volatility and sometimes liquidity. The natural outcome of this is that the market tends to range in this session.

Now take a look at the following chart and spot the important difference between the two:

***chart***

As we can see here there is clear volatility taking place. The pair moves from about 1.2990 to 1.2927 as illustrated in point A.
This is more than a 60 pip swing. Point B shows us a 25 pip counter-trend move. Point C is the market action that occurred a few hours before what was illustrated in the first chart.

So, why is market action in points A+B so different from market action in point C? Simply because A+B occurred during the US session which is considered a very volatile session, especially if there are any important news announcements such as government reports. Again, point C occurred at the end of the US session and through the beginning of the Asian session.

What I wanted to achieve in this article is simple. When designing a forex trading system, specially a forex day trading system, take into consideration the markets different characteristics throughout the 24 hour trading day. For example, try to use a forex day trading systems in the US or EU sessions that focus on capturing swings; in the Asian session try to use range trading techniques.

Remember, being a successful forex trader requires not just a simple system but an understanding of many contributing factors. Time of day is one of these very important factors.

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