Make Your Own FOREX Trading System

Forex seems to be a very popular subject that promises quick profits. The net is filled with thousands of results on forex trading systems, 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 dont need to pay someone else to teach you something thats really pretty simple to create for yourself.

Basically, a 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. 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 well focus on when designing our own FOREX trading system.

What elements then do we need for our 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 youre new to FOREX trading its suggested that you stick to long term trading as its far easier to spot trends and cut your losses when compared to day trading.

2. Find an indicator youre comfortable with. Knowing when to buy is key to generating big profits, so its 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 its 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 youd 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 dont 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 youre 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 youre 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 youve 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 youve got a winning system then its time to move onto live data via a demo account. Practice makes perfect and you dont want to risk real money until youre confident your FOREX trading system can provide you with decent profits over time.

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