Friday, 13 April 2012

Forex Trading System Needs to be Chosen By Taking into Many Consideration

The market is flooded with many online Forex trading systems that offer extraordinary profits. However, while examining the track record carefully on the best Forex trading systems, you will see this warning: "CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated program trading in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".

If such is the warning inscribed on the trading system, a second thought must be given while buying that particular system. While checking the track record which may appear good for over two or three years, you need to check the worst peak to valley draw down. It means you need to adopt the system at the worst possible time, look at the decline in equity and check for yourself if you can live with that and the time it takes to make a new peak in equity. The selection needs to be made with a preparation that worst draw down is ahead and that you are ready to stick with the system even through these periods of losses.

A trader needs to avoid the temptation to buy a black box currency trading system. It is a trading software package where the logic upon which the software calculates the trades is not revealed. Unless and until you know the logic, no successful system can give the traders confidence. And, if one does not have confidence in the system, executing trading signals through periods of losses is difficult. Hence, it is better to buy a Forex trading system that has its logic explained to the trader so that the trader knows how and why it works.

While going for any forex agent system, it is always desirable to know something about the vendor. It is good to ask as many questions as a trader as it gives an idea how much support a trader will get in advance of buying the program.

A totally mechanical Forex trading system which has a real time track record costs more than any other system. Also, a trader needs to be very careful in buying the huge amount of automatic trading software for sale with a simulated track record as these systems have never been proven to work.

Simplicity is indeed the thumb rule. So, it is better to choose simple trading systems as they are more robust and dependable. If you choose a more complicated system, you are likely to fall victim of curve fitting. As all the systems are based around support and resistance, it is important to define this in a system that you want to choose.

No matter what system you choose, you need to make sure that each and every move is based upon price momentum. A trader needs to use momentum indicators to prove whether momentum is accelerating or declining, at an important resistance or support point to get the odds on trader's side. There are many to choose from but good ones are – the stochastic and the Relative Strength Index (RSI).

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