Developing A Forex System

One step towards being a profitable trader is having confidence.In order to achieve this you must trust your system and what could be more appropriate than developing your very own forex strategy.

Creating a forex strategy is actually a straightforward process if you follow this simple guide. Every trading strategy has at least three basic features:

1) timing your entry
2) timing your exit
3) contract size

You must choose specific rules for each of this three steps. Let’s create a strategy right now! free forex strategies

1) Entering the market
Rules for long trades:

- 5 SMA must cross above 8 SMA
- stochastic oscilator must be crossed and coming from the oversold zone

2) Closing a trade

You exit the market either when profit target is hit (50 pips) or when stop loss is triggered (25 pips).

3) Lot size

You calculate the contracts based on your risk tollerance.That means that if you have a trading capital of 10000 usd and you don’t want to risk more than 2% (200 usd) you divide that amount to the number of pips in your stop loss. 200/25=8 so you can trade 8 mini lots (1 usd/pip).

You’re done. We’ve developed a forex strategy. Next step? The first thing you should do right after, is manually backtesting it with a trading platform (i suggest metatrader). If results are promissing try it on a live demo account for at least three months. If it passes this test too than you are ready to test it on a live account with real money.

But what if the backtesting is not so promising? You can try applying filters to avoid whipsaws like “rsi must be above waterline for long trades and bellow for short trades”. Try different filters and see what happens. You can learn more about foreign exchange by visiting my blog free forex trading strategies

Another important aspect when developing a system is choosing a chart. If you are a day trader you will probably choose smaller timeframes like 4h,1h or 15 minutes. Anything smaller than 15 minutes seems noise. Instead if you are a position trader you will want to focus your attention to bigger timeframes like daily, weekly or even monthly charts. More complex strategy use multiple timeframes.

You should keep in mind that a good strategy must produce constant results over a long period of time without much drawdown.

Also you should test it on different currencies and choose the one that suits best. In this example a 25 pip stop loss may be appropriate for a pair like eur/usd but for gbp/jpy 25 pips is a sniff so be careful.

So why pay for forex systems. I just don’t see the point. If you have a winning strategy that is 80% profitable why bother with selling it for pennies when you can make millions on the fx market?

Read about Forex market and free Forex signal on this blog.