There are so many currency trading systems on the internet, it is hard to know what to look for. Many people new to forex trading waste a lot of time looking for the perfect system, which does not exist. It is easy to get into ‘analysis paralysis’ where all of one’s time is spent testing and analyzing systems, jumping from one to another in demo mode and never beginning real trading at all.
It is important to start out by understanding that different currency trading systems suit different traders. Two traders using the same system will never have the same results. They apply it in different ways, with different position sizes, different brokers, or sometimes even giving different weight to the various signals that will be mentioned in the system. This is why the perfect forex trading system does not exist.
This means that the first thing you should consider when looking at currency trading systems is whether their trading style will suit you. Is it very complex, using a combination of many indicators? If so, it will suit somebody who enjoys technical analysis and is comfortable with figures.
Does it have small, steady profits and losses, big wins and big losses, or many small wins and a few big losses? The first of those options will be less stressful, so would suit traders who tend to make bad decisions under stress. However, that type of system might be difficult for a trader who enjoyed a high level of risk. They could become impatient or bored and start increasing the stakes beyond what is appropriate to the system.
Once you have found one or more currency trading systems that fit your criteria, the next step is back testing. This means going over past price charts and recording all of the trading opportunities that arose in the past for your system. It is a good idea to check back for at least one full year since there are certain market conditions that tend to arise at certain times of year.
If a system does not produce good profits in back tests, it is probably not worth pursuing further. Most systems do better in back tests than in the live market, even in demo mode. This is because analyzing past charts gives you the perfect situation to make the most of every trade.
Demo testing is slower because you have to wait for trading opportunities to arise. However, it gives you a much better idea of how the system will perform for you, so do not skip this step. In real life you will often not open a trade at the very moment that the signal is right. There may also be slippage when you close the trade, so you may not get the price that you expected.
Testing can be a slow process but it is important to be patient. Going live on a system that you are not sure of will lead to losses. Careful selection and testing of currency trading systems is vital if you want to succeed as a forex trader.