Why You Need a Forex Trading System
A lot of people start trading on the forex market without a clear plan of how they are going to make money through their trades. This lack of a forex trading system actually leads many new traders to lose most, if not all, of their money before they make any profit. Before you start trading it is important that you create a trading plan that covers risk management and your trading strategy.
Your Forex Trading System and Trading Strategy
Before you start trading you need to decide on your trading strategy. Some of the trading strategies use Fibonacci bounces, trend continuation momentum, Bollinger Band reversal set-ups and moving average cross to find the entry point. The most significant aspect of the strategy is not the method you use but how consistently you use it. Once you have decided on a strategy you need to stick to it. There are many trade opportunities which you may come across which would make money but if they do not fit your entry strategy you should not take them. Of course, over time you may find that your strategy does not work for your trading style. At this point it is possible to try a new strategy but it is recommended that this be tested on a demo account before trading live.
The Risk Management Plan
While your entry strategy is important your risk management plan is possibly more important. The risk management plan is what can really determine the level of success you have on the forex market. An entry strategy is the way you will get into the market but the trade management plan ensures that after entry your trades work towards a profit. The most important aspect of your trade management plan is, knowing what you are going to with a trade before you even make it. There are certain questions you should ask as part of your plan before you make a trade.
- Will I be using a trailing stop for when my trade makes a profit?
- If I am using a trailing stop when should I have it begin and how much should I trail?
There are many other questions like these that you should ask yourself. Once you have asked the question you need to form as detailed an answer as possible. By having detailed answers you are able to plan what you are going to do which lowers the risk of emotional trades.
Never Divert from the Plan
Many traders make the mistake of deviating from their trading system and this can lead to losses. If your trade is about to hit profit you may think about moving the target up and adding to the trade. If you have taken the time to create a trading system you will know that the answer is no. You have set a system which will ensure you profit from trades so you do not need to move targets. Having a plan provides you with freedom and relieves you of any doubts you may have while trading.
A forex trading system needs to cover not only your entry strategy but your trade management plan as well. Having this system will ensure that any trade you complete is profitable.
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