Forex Slumdog or Millionaire? How To Know If You Have A Winning Forex Trading System
When you are trading in the forex market, you've got to have a forex currency trading system to base all of your transactions on. The longer you are in the game, the more systems you will see, and believe me, there are a lot of them. Each and every person in the forex market has certain aspects of the market that they either like to focus on or are very good at.
It cannot be stressed enough that you need to match the forex system up with your best attributes. If you cannot find something out there that fits you, why not make up your own and combine the different aspects of the market that you are successful with.
Can your forex trading system make a profit? When you are trying to figure out if your forex trading system is profitable, don't fall into the trap of thinking that back testing is the best way to go about it. This is a common error among traders and they couldn't be further from the truth. The shortcoming of the system is that it will only look at the set up that is the most obvious. There may have been another set up that was a little more difficult to pick up on, but one that was more dominating and caused losses.
If you are trying to figure out if the system will work, why not practice with it? Get some real time usage out of it by opening up a demo currency trading account and see how it performs. You will get more familiar with it and can get the kinks worked out without costing yourself some money.
What do the terms expectancy and opportunity mean? Expectancy and opportunity are two factors that are very important in figuring out if your trade is going to be profitable or not. Here is an equation for expectancy: (average win x probability of winning) - (average loss x probability of losing)
Once you have computed your numbers, hopefully you will have a positive number. If you don't, go back and start again because the system that you are using will have you losing money. That is not what we want, obviously.
When you get a forex currency trading system that puts out a profitable number, now you need to know what the opportunity, or how often this system can be used, is. Take your opportunity factor and multiply the expectancy factor with it and you will have your long term profitability of the system. The more you can use it as part of your forex trading strategy, the higher chance to make money.
What does it all mean? By taking off this data, you will be able to compute how often and how much profitability this system will possibly present you with. In this way, you'll know if your forex trading system is a slumdog or one that can make you a millionaire.
Source: Free Articles from ArticlesFactory.com
ABOUT THE AUTHOR
You can instantly download a simple and proven forex trading system with my FREE 56-page "Forex Trading To Riches" ebook at http://www.forextradingpower.com.
The author, Daniel S, is the owner of http://www.ForexTradingPower.com where you can get free premium forex trading tips and resources.