Step to Having a Rule-Based Forex Trading System
Your forex trading systems should be more than simply a set of rules that tell you when to enter a trade and exit. The system should be a comprehensive amalgamation of important trading factors that suit your trading style and personality. There are certain steps that you should take when setting up your rule-based trading system.
Look at Your Mindset
The step of looking at your mindset actually has 7 points that you should be looking at and considering:
- Knowing who you are and all the aspects of your personality is the first part. You have to look at all your personality strengths and weaknesses and how they would affect your trading.
- You then have to match your personality with a trading style. There are certain trading styles that work best for certain personality types. It is important that you start with the timeframe you would succeed in trading in. If you feel comfortable with short-term trading look at short-term strategies.
- Being prepared is another part of your mindset. While it is important that you have your trading strategy on paper you also have to run through it mentally so you understand it.
- Being objective allows you to negate the effect your emotions have on your trades. You do not want to trade emotionally if you can help it.
- Being disciplined means sticking to your trading plan and not letting your emotions get the better of you.
- You also have to be patient and wait for the best times to trade. Trying to trade when the market is not right will lead to losses.
- The last part of your mindset is to have realistic expectations. This relates to your trading goals and how much you can do in a day.
Your Forex Trading System Goals and Mission
As with everything in life you need goals when you are trading. By setting goals you have something you can work toward and this gives you a sense of accomplishment. Your goals need to be realistic as unrealistic goals only leads to greater risks and disappointment. Once you have your goals you need to set out how you are going to achieve the goals. Again, you must be realistic with this as that is the only way you will reach your goals.
Having Enough Capital
Capital is what you use when you start trading and you need to have enough of it. Most new forex traders believe they can reach their goals with limited capital because you can open an account with limited capital. However, if your goal is to make a living off trading then you need capital amounts that reflect this. Of course, you should never use capital that you cannot afford to lose when you trade. All traders lose on trades at some point and if you are constantly fearful about the loss then you will not trade well.
Test your Strategy
Once you have your goals and have mapped out the strategy you are going to use you need to test it. Testing can be done on a demo account where you use virtual money to trade on the forex market. When you use a demo account you have to follow your trading plan to ensure it works before you start trading live.
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