Having an effective forex system is essential to the viability of your trading career. The problem with assuming that you can jump right into the international currency exchange market and make money right away is the fact that almost all the statistics are against you. Out of all the people who have the same ideas as you about getting involved in forex and turning an easy profit, 90% of them fail. The difference between a profitable forex trader and that 90% of people who lose their money in the market is the implementation of an effective foreign exchange system.
Let’s take a look at what a good forex system is:
- It is the set of personal protocols or rules a trader uses when trading currencies for a profit.
- It must balance the need for risk management, when and why you will buy or sell a given currency pair, and how you will apply your own technical and fundamental analysis while trading.
- It not only allows you to make a profit, but it also allows you to accept and control loses. No one can expect to be profitable 100% of the time when they are trading on the foreign exchange. The crucial part of being a successful trader has to do with how long you can hang on to profits, how long you can run your profits, and how effectively you can manage your risks and capital.
- It gives you the confidence and objectivity you need to prevent yourself from making emotional trades and doing other detrimental actions while managing your account. And this is very important: people get emotional when they are making or losing money. Chances are, as the emotion increases, the objectivity of the trade decreases, until you are essentially gambling your capital away. Your forex system allows you to reproduce your gains when you make them, and understand why you lost when you do lose.
- It has a rough draft of what indicators and fundamental analysis you can rely on when valuing a given instrument, and allows you to value your positions at any given moment. When you trade in forex according to the predetermined guidelines within your personal system, you will be able to partially decrease the incredible randomness of the market by decreasing the randomness of your actions.
If you have developed your personal forex system to your liking, a great way of testing it is through a forex simulator. Remember that nothing can truly simulate the psychology of real trading with real money, but a trading simulator will allow you to work out at least a few imperfections in your trading strategy.
The forex system is your ambassador to the market, so make sure it is a good one.
Click on the link below to learn more of what foreign exchange is all about.
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