Forex Trading Systems - Want to win 90% of the time?
by Harold Hsu
Online, you'll often read about Forex trading advertisements that boast of more than 90% winning trades.
Sounds great doesn't it? Would you pay $100 for a trading system that may win 90 out of every 100 trades?
If you answered "Yes", you're in trouble!
Unfortunately, the truth is that a high winning percentage has little to do with being a profitable trader. In reality, it's easy to have 90% of winning trades and still lose money.
Don't believe me? Go ahead a search online search for the "turtle traders". If you're familiar with them, you'll know that they are very profitable traders with only a 20% winning trade percentage.
Allow me to explain...
Imagine you make 10 trades in a month, and 9 of these trades are profitable for $1 per winning trade. This means that you have a winning percentage of 90%, with $9 in profit.
And if you have only 1 losing trade out of 10 (i.e. 10% losing trades), but you lose $10 on that one losing trade. In total, you would have lost ($9 - $10) $1 among all your ten trades.
Can you now see why a high winning percentage doesn't mean that you'll be a successful trader? You see, it's not about how often you win, but how MUCH you win.
So don't fall for the marketing tricks
Many advertisers use high winning percentages as a sales tool to get you to buy the trading systems they are selling. They know that traders like to win all the time, and who doesn't like to win often? These advertisers try to appeal to everyone's desire to win, and unfortunately many people fall for their trap.
Conclusion
It's easy to have 90% winning trades and still be a losing trader. At the same time, you can have a low winning percentage, but be a very profitable trader. In reality, winning percentages have very little to do with a trader's success.
So don't fall into the advertisers' trap when you see their "high winning percentage" claims next time. When people use high winning percentages as a sales pitch, chances are that they know very little about what it truly takes to be a successful trader. Be careful!
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Showing posts with label FOREX Money Management. Show all posts
Showing posts with label FOREX Money Management. Show all posts
Forex Trading Systems - Want to win 90% of the time?
Saturday, April 4, 2009 Forex Information, Forex Market Timing, FOREX Money Management, Forex Quote, Forex Trading Systems
Create Your Own FOREX Trading System In 5 Easy Steps
Monday, March 30, 2009 FOREX Charts, Forex Currency Trading Online, FOREX Money Management, Forex Scalping, FOREX trading account, Forex Trading System
Create Your Own FOREX Trading System In 5 Easy Steps
by Yusoff Allian
A quick search on your favorite internet search engine for the phrase "FOREX trading system" will yield thousands of results, all of which will try to convince you that theirs is the only sure-fire profit making system available. The truth of the matter is that yes, some or most can make you money, but you don't need to pay someone else to teach you something that's really pretty simple to create for yourself. At its core your FOREX trading system needs to be able to spot trends early and also be able to avoid sharp rises or falls due to a particularly volatile market. At first glance this may seem like a difficult thing to accomplish and to be honest no FOREX trading system will perform both functions flawlessly 100% of the time. However, what we can do is design a trading system that works for the vast majority of the time - this is what we'll focus on when designing our own FOREX trading system. So, what elements do we need to consider for our custom system? The most important criteria are as follows:
1. What kind of trader are you? Do you like to follow long trends, or are you glued to your charts for 8 hours straight per day? If you're new to FOREX trading it's suggested that you stick to long term trading as it's far easier to spot trends and cut your losses when compared to day trading.
2. Find an indicator you're comfortable with. Knowing when to buy is key to generating big profits, so it's important to understand some of the key indicators and how they can identify trends. Moving averages are probably the easiest indicators to work with and can be very useful in recognizing emerging trends. A common tactic is to use two moving averages, one slow and one fast, and wait for the fast average to pass above or below the slow average. This is commonly known as the moving average crossover technique. As with everything else in our FOREX trading system it's simple, easy to understand, and effective.
3. Risk Management. Successful FOREX traders understand that you *will* lose money at some point or another, no matter how effective your FOREX trading system is. You will always want to use a stop-loss on all your trades, but the amount risked will vary from person to person based on their experience and available capital. Knowing where to set your stop loss can be tricky - you want to limit how much you could possibly lose so you'd be tempted to set a very small range, but at the same time you want to allow for short term rises and falls so that you don't exit your position too early.
4. Know when to get out. Knowing when to exit a trade can be just as tricky as knowing when to enter, but for your custom FOREX trading system you want to pick one way that you're comfortable with and just stick with it. One simple technique is called the 'trailing stop' technique, and all this entails is updating your stop loss as your position increases in value. Another popular method used in many FOREX trading systems is to set a target and get out when that target is reached. This can be based on support or resistance, or simply based on a certain number of pips. Find a method you're comfortable with and stick with it.
5. Test your FOREX trading system. So you now have a trading system that tells you when to enter and exit a trade, so see how it performs using real data. Find historical data for a currency you've thought about trading, and analyze the charts. Apply your FOREX trading system to the data you see in the charts and write down the results. Was the system effective? Would you have turned a profit or a loss? Try your trading system on several different charts and record the results. If you've got a winning system then it's time to move onto live data via a demo account. Practice makes perfect and you don't want to risk real money until you're confident your FOREX trading system can provide you with decent profits over time.
by Yusoff Allian
A quick search on your favorite internet search engine for the phrase "FOREX trading system" will yield thousands of results, all of which will try to convince you that theirs is the only sure-fire profit making system available. The truth of the matter is that yes, some or most can make you money, but you don't need to pay someone else to teach you something that's really pretty simple to create for yourself. At its core your FOREX trading system needs to be able to spot trends early and also be able to avoid sharp rises or falls due to a particularly volatile market. At first glance this may seem like a difficult thing to accomplish and to be honest no FOREX trading system will perform both functions flawlessly 100% of the time. However, what we can do is design a trading system that works for the vast majority of the time - this is what we'll focus on when designing our own FOREX trading system. So, what elements do we need to consider for our custom system? The most important criteria are as follows:
1. What kind of trader are you? Do you like to follow long trends, or are you glued to your charts for 8 hours straight per day? If you're new to FOREX trading it's suggested that you stick to long term trading as it's far easier to spot trends and cut your losses when compared to day trading.
2. Find an indicator you're comfortable with. Knowing when to buy is key to generating big profits, so it's important to understand some of the key indicators and how they can identify trends. Moving averages are probably the easiest indicators to work with and can be very useful in recognizing emerging trends. A common tactic is to use two moving averages, one slow and one fast, and wait for the fast average to pass above or below the slow average. This is commonly known as the moving average crossover technique. As with everything else in our FOREX trading system it's simple, easy to understand, and effective.
3. Risk Management. Successful FOREX traders understand that you *will* lose money at some point or another, no matter how effective your FOREX trading system is. You will always want to use a stop-loss on all your trades, but the amount risked will vary from person to person based on their experience and available capital. Knowing where to set your stop loss can be tricky - you want to limit how much you could possibly lose so you'd be tempted to set a very small range, but at the same time you want to allow for short term rises and falls so that you don't exit your position too early.
4. Know when to get out. Knowing when to exit a trade can be just as tricky as knowing when to enter, but for your custom FOREX trading system you want to pick one way that you're comfortable with and just stick with it. One simple technique is called the 'trailing stop' technique, and all this entails is updating your stop loss as your position increases in value. Another popular method used in many FOREX trading systems is to set a target and get out when that target is reached. This can be based on support or resistance, or simply based on a certain number of pips. Find a method you're comfortable with and stick with it.
5. Test your FOREX trading system. So you now have a trading system that tells you when to enter and exit a trade, so see how it performs using real data. Find historical data for a currency you've thought about trading, and analyze the charts. Apply your FOREX trading system to the data you see in the charts and write down the results. Was the system effective? Would you have turned a profit or a loss? Try your trading system on several different charts and record the results. If you've got a winning system then it's time to move onto live data via a demo account. Practice makes perfect and you don't want to risk real money until you're confident your FOREX trading system can provide you with decent profits over time.
FOREX Money Management - The Key To Long Term Profits
Tuesday, March 24, 2009 forex experience, Forex Information, FOREX Money Management, Forex Quote, Forex Scalping
FOREX Money Management - The Key To Long Term Profits
by Yusoff Allian
Although it can be tempting to whip out your credit card and take advantage of a strong upward trend in your favorite currency, failure to manage your money properly will leave you broke faster than you can say "sell, sell, SELL!!"
FOREX trading, just like any other form of investment, is not a guaranteed money maker 100% of the time. Professional investors know this, and they know that some of their trades *will* lose money. The reason they're still successful is that they plan for these losses accordingly so that in the long term they remain profitable.
Consider this example: a new trader finds a FOREX trading system that proves 75% successful, definitely a system to hold on to. What this means is that out of every 100 trades, 75 will generate a profit. The problem lies in not knowing which of the trades will be successful and which will cause a loss. What if the first 25 trades executed with this system generate losses, while the next 75 generate profit? If the trader has not practiced money management wisely he may have lost his entire investment capital on those first 25 trades.
The more aggressive FOREX trader will no doubt claim that the only way to big profits in a short period of time is to risk more of your capital, but in essence all he is doing is gambling. Indeed, an aggressive FOREX trader may get lucky and hit ten profitable trades in a row generating a very nice profit, but what happens if the next 19 trades all generate losses? If he's still wagering large sums of money on each trade he'll soon be back to where he started from, or more likely in an even worse predicament.
A disciplined FOREX trader will only risk a smaller percentage of his or her investment capital on each trade. Sure, the profits will be smaller in the short term compared to a more aggressive trader, but when the downturn hits (and it most definitely will), the FOREX trader practicing wise money management will be able to weather the storm far better than the aggressive trader.
It may not be the most exciting of strategies, but you're not in the FOREX trading business for thrills, you're in it to generate consistent profits. Using anything other than wise money management when investing in the FOREX market is simply gambling, and if you want to gamble then you're better off at the casino. Even professional poker players, widely labeled as gamblers by spectators, employ money management systems. They realize that they can't possibly win every single tournament they enter, so instead of risking their entire bankroll on one game they risk only a percentage at each one. This allows them to recover far more quickly when their losing streaks hit. Those that don't practice money management quickly find themselves playing Crazy Eights instead.
In conclusion, don't let the promise of quick riches cloud your judgment. FOREX trading is not a get-rich-quick scheme; it's an investment vehicle that can provide healthy profits for those who manage their money wisely. Remember, slow and steady wins the race.
by Yusoff Allian
Although it can be tempting to whip out your credit card and take advantage of a strong upward trend in your favorite currency, failure to manage your money properly will leave you broke faster than you can say "sell, sell, SELL!!"
FOREX trading, just like any other form of investment, is not a guaranteed money maker 100% of the time. Professional investors know this, and they know that some of their trades *will* lose money. The reason they're still successful is that they plan for these losses accordingly so that in the long term they remain profitable.
Consider this example: a new trader finds a FOREX trading system that proves 75% successful, definitely a system to hold on to. What this means is that out of every 100 trades, 75 will generate a profit. The problem lies in not knowing which of the trades will be successful and which will cause a loss. What if the first 25 trades executed with this system generate losses, while the next 75 generate profit? If the trader has not practiced money management wisely he may have lost his entire investment capital on those first 25 trades.
The more aggressive FOREX trader will no doubt claim that the only way to big profits in a short period of time is to risk more of your capital, but in essence all he is doing is gambling. Indeed, an aggressive FOREX trader may get lucky and hit ten profitable trades in a row generating a very nice profit, but what happens if the next 19 trades all generate losses? If he's still wagering large sums of money on each trade he'll soon be back to where he started from, or more likely in an even worse predicament.
A disciplined FOREX trader will only risk a smaller percentage of his or her investment capital on each trade. Sure, the profits will be smaller in the short term compared to a more aggressive trader, but when the downturn hits (and it most definitely will), the FOREX trader practicing wise money management will be able to weather the storm far better than the aggressive trader.
It may not be the most exciting of strategies, but you're not in the FOREX trading business for thrills, you're in it to generate consistent profits. Using anything other than wise money management when investing in the FOREX market is simply gambling, and if you want to gamble then you're better off at the casino. Even professional poker players, widely labeled as gamblers by spectators, employ money management systems. They realize that they can't possibly win every single tournament they enter, so instead of risking their entire bankroll on one game they risk only a percentage at each one. This allows them to recover far more quickly when their losing streaks hit. Those that don't practice money management quickly find themselves playing Crazy Eights instead.
In conclusion, don't let the promise of quick riches cloud your judgment. FOREX trading is not a get-rich-quick scheme; it's an investment vehicle that can provide healthy profits for those who manage their money wisely. Remember, slow and steady wins the race.
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