Currency Trading Systems - Using an Automatic One for Long Term Profits

Currency Trading Systems - Using an Automatic One for Long Term Profits

By: Monica Hendrix

The theory is great get a currency trading system which simply executes a set of rules so you don't have to do anything but follow the rules and let it pile up profits. This is a good option for many traders and saves time and can keep you disciplined - you can build your own or buy one.

Here are the basics of using automatic currency trading systems.

1. Buying a Trading System

There are plenty of vendors who want to sell you one but not many are any good and rely on simulations. You can however find good ones but insist on a track record over 2 years of real time trading and check the bank statements. T

There out there if you want to look but be aware of the ones that have never traded and make sure the logic is revealed to you as unless you understand why it works you wont be able to follow it with discipline.

We will in a minute look at building your own but lets look at the advantages and disadvantages of these systems.

The advantages

Time

You don't have to do anything just execute your trading signals when required.

Discipline

As it follows a set of rules, emotions can't get in the way and if you follow it you have a ready made disciplined trading method which (if the system is based on sound logic) is essential for forex trading success.

The disadvantages

I am going to assume here you have found a logical and proven system - but even though you have one,you have to operate it so be aware of the following:

Drawdown

It will at some stage probably lose and lose for weeks or months on end, so you have to have the confidence to stick with it. Take the track record and assume that you joined at the worst peak to valley drawdown and note that is what you need to lose. Next, check the time to recovery and note, this is the time you may have to wait to see profit.

Always assume your worst drawdown is ahead of you. Be prepared to stick with it with stops behind the worst previous drawdown

Tinkering

Its not doing as well as you thought, so you over ride it.

Many traders do this but if you do you then have no system at all.

Building Your Own

With today's software this is easy to do and you can back test. If you want to do this then just keep in mind the following:

Keep it simple just a few rules - simple systems work best.

If you want an example of a simple system that works check out Richard Dochian's Four week rule - it's amazingly simple but works!

Just a few indicators and parameters are all you need.

When you back test it do not curve fit!

Curve fitting is the commonest error in system testing.

It simply involves bending the system to fit the data to make a profit and improve drawdown and its a fatal error made by many system traders. A trader I once knew likened this to shooting at a barn door and then drawing a bulls-eye around every shot afterwards.

Many traders find their system doesn't work as well as they thought so they start making the system fit.

They do this by introducing more parameters and variables and unique rules for different markets and conditions.

In real time trading the system collapses as no two sets of data are ever the same.

If your system is based on sound logic it should have a few rules only, work in all markets and all conditions.

So there you have a brief introduction to the world of automatic currency trading systems.

They can be a valuable addition to your forex trading strategy and lead you to currency trading success if you use them the right way.

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