Trading Systems and Strategies
First we will discuss what forex trading systems and strategies are available to forex traders, then we will discuss how to evaluate these systems.
Scalping with Technical Indicators
Almost every forex traders scalps the EUR/USD using some combination of technical indicators. They use different combinations and layers of technical indicators (Fibonacci, stochastic, RSI, etc). These same traders lose money and continuously default to the smaller time frames. This has been going on for many years and the traders who use these indicators complain that currency trading is risky. It has been proven that all of these indicators are 100% useless and these traders need to quickly move on to evaluate other types of systems. Most forex traders cannot even explain what these indicators do and why they use these layers of indicators on their screen and they believe it is okay to do this because that is what other traders do. Traders who do this are lost and will never succeed unless they move on.
Fundamental analysis has some value to forex traders. If an individual country or region is raising interest rates that currency is likely to strengthen. So logically you would like to buy that currency. But you cannot trade on fundamentals alone because you can have periods of draw down and your account could get wiped out. You still need more exact entry points into each trade, combined with stops.
Trend Following With Confirmed Entry Points
This type of fx system is what we use at Forexearlywarning and is not used by many traders. We analyze 28 pairs with multiple time frames of trends with an emphasis on trading in the direction of the larger time frames. We look for pairs that are trending or are building new trends. We have validated entry points using The Forex Heatmap®. We also scale out lots on profitable trades and look for price targets with widely accepted support and resistance techniques. Combined with other factors like the forex news calendar and always having a trading plan in hand, it is a complete system. Surprisingly, very few traders are trend followers or understand multiple time frames.
How to Evaluate An Existing Trading System or Strategy
It is possible for a new trader to evaluate a system. But remember there are hundreds of websites offering automated trading robots and other websites making some pretty outrageous claims about the profits. It is difficult to find a good educational course about trading systems like this one. Most websites want a lot of money up front to teach you anything at all about the currency market, even basic information.
That being said here are some things to look for. Does the website with the system you are evaluating have a complete explanation of the system o nthe website? Are you able to easily ask questions by email, phone or Skype or do all you get is a sales pitch? Is the website brand new or has the company offering the system been around several years? Foreign exchange websites come and go quickly. Who is the owner of the system? With most fx websites you have no idea who the people are behind the system, all the website shows is an email address and another sales pitch. Is the system logical? When you read the information about the system is everything hidden or well explained and easy to understand. Use commons sense and be a good consumer before buying or subscribing to any trading system or expensive course, ask a lot of questions. Remember that Forexearlywarning has several courses available that explain our system quite clearly, and the information is free. When you find a system you like then start demo trading that system to clearly evaluate it.
Should You Develop Your Own System or Strategy?
Developing your own trading strategy has been tried by thousands of traders, resulting in many thousands of systems now available along with thousands of failures. To develop a fx trading system that actually works could take years and if you turn out to be wrong you are back to square one. The reason that these thousands of systems do not work is that they are all fundamentally flawed by being based on technical indicators, and the infinite possible number of combinations of these indicators.
Systems That Do Not Work and Systems That Do Work
There are currently plenty of trading systems and strategies available to choose from. The issue is not the number of systems available, the issue is that of the thousands of systems that are available do not make any sense at first glance. Finding a system that is simple, that can be understood by anyone, is easily explained, as well as powerful is rare to non-existent.
Here is a simple strategy: if the EUR is strong on all pairs and the USD is weak on all pairs the forex market is telling you to buy the EUR/USD. This is very simple and it works. This is one of the things we do at Forexearlywarning. Traders say that they want things to be simple but they routinely make trading incredibly complicated. Choose a simple system that is logical even for the non-trader to understand. We also trade significant breakouts of support and resistance with verification from The Forex Heatmap®, another simple trade entry system that works.
Why Do So Many Currency Traders Fail?
Forex traders fail because they do not have a trading system that works. They have no system at all, they have no trading plan, they have no market analysis skills, they have no money management techniques, quite a list! Also there are psychological issues and barriers, simple greed and refusing to demo trade, and emotional decisions versus logical trading decisions also contribute to the failure of a currency trader. Having a logical trading system is the beginning of the cure to these failures.
What is The Best Indicator To Use?
The forex market market itself is the best indicator and it always will be. We analyze the entire market daily at Forexearlywarning to determine the trends of the market, then perform similar analysis at the point of trade entry. Our techniques are logical and straightforward.