Most traders spend a good part of their time hunting for the next big indicator that can give them an edge in trading. Some traders simply keep hopping from one indicator/trading system to the next in hopes to find the elusive trading method.
No matter what, if traders do not have some basic issues/questions they want answers to, hunting for a trading system or indicators is simply a waste of time and equity as well.
I always believe that trading systems are nothing but a reflection of the trader itself. There is no one single trading system that works best across different trading personalities.
There are many variables in play, factors such as patience, risk tolerance and so on which makes it difficult for one trading system to work across different trader mindsets.
So what are the questions to ask before you start hunting for a trading system?
While this question might seem very broad, the answers to it are very straight forward and puts you on the right track. Let’s talk about growth. Are you looking to make 5 – 10 pips a day or are you more comfortable making profits on a weekly or monthly basis?
Based on this answer, traders would be able to filter out the trading systems that do not suit/meet their criteria. We assume that the trader already knows what forex indicators to use in their trading system.
What’s your risk tolerance and trading preference?
While the acceptable risk management is somewhere from 1% – %5 (some even go as far as 10%), this is more of a personal choice and depends on factors such as the amount of loss per trade you are willing to take.
In reality, different trading systems come with different profit/loss levels. Again while 1:2 or more is good, not all trading systems strictly follow this strategy. Therefore, understanding risk tolerance will help you identify the right trading system that fits your risk level.
Are you more comfortable with your screen filled with various indicators or do you prefer to have the most minimal of indicators? Is subjectivity something you prefer to stay away from?
Answers to the above questions can help you narrow down your trading system based on the indicators the system uses.
Some traders prefer many indicators on their screens… think rainbow indicator, Bollinger bands and more, while some traders prefer to keep their charts simple such as pivot points, Fibonacci and so on.
While this might seem trivial, having a forex trading system that you are comfortable with plays a big role in the long term.
Understand the indicators
You cannot expect to excel at trading without knowing what the indicators are doing on the screen. Trading simply based off a 5/20 EMA does not help in the long wrong. Take time to understand what are EMA’s for example and what happens when there is a cross-over of the EMA’s.
This will not only help you take better trading decisions, but will also help you to eliminate any redundant trading indicators.
A trading system is supposed to provide you consistent profits over a period of time. Making sure you are familiar with the system you trade can not only build confidence but also help you to adjust/grow the trading system as markets change. In forex trading, traders usually go through three main phases in their trading career.
How to avoid getting scammed with forex trading systems
In the first phase, traders are usually on the hunt for trading systems that promises tremendous profits. During such a phase, traders typically spend a lot of time on forums, or searching for the latest trading system that promises them riches.
In this initial stage, the trader is usually impatient and keep jumping from one trading system to another. The only thing that is constant at this point is that they continue to lose their money, trading forex.
In the second stage, the trader is usually a bit more well versed with trading systems and indicators and at this point, realize that there is no single trading system that works all the time (or with 100% accuracy).
In the next stage, the trader spends more time actually reading up on the indicators, trying to understand how they work. This involves reading up on the wealth of information available on forums as well as subscribing to trading courses and so on.
Finally, the trader gains decent enough experience to spot a scam trading system from a good one.
In all possibility, the final stage marks the coming of age for a trader. At this point, the trader is experienced enough to understand that paying for a trading system is futile and that it is only themselves that can build a trading system based on their understanding of various indicators, their trading styles and so on.
As obvious by the three phases, it is during the first stage that traders tend to lose quite a lot of money, not just their invested capital in a forex account but also spend a lot of money buying worthless trading systems with false promises. Let’s take a look at some commonly used techniques used by marketers who sell their trading systems.
Misleading pictures and images
If you search well enough, you will notice that most of the sales pages you come across for forex trading systems only carries images of charts, usually with arrows and the # of pips in profits. This is a compelling way to subtly tempt the visitor into parting with their hard earned money.
Despite numerous warnings, traders still tend to fall for this simple tricks and it is only after they use the system for a while do they notice that the trading system doesn’t work as promised.
Markets are never constant
The financial markets are dynamic.
Therefore, a trading system that worked couple of years back might need some tweaking or fine tuning to catch up to the prevailing market conditions. As you know, there are business cycles in an economy, the same applies for trading systems as well.
Therefore, simply following the trading rules dictated by a trading system won’t get you too far.
Relation between a trading system and a trader’s profile
No matter how compelling a trading system might seem, there is no ‘one trading system fits all’ method. Traders are unique, in that they each bring their personality. Usually, those who are impatient find it more comfortable scalping the markets. For those having a regular job will find trading long term (H4, Daily Charts) more convenient.
Sadly though, most trading systems fail to address these aspects. They sell their system as the ‘greatest’ forex trading system available.
There is no Holy Grail in trading
Most forex trading system sales pages are articulated. They are written in a way that the marketer disguises himself as an individual and tries to connect with you. Therefore it is not uncommon to see sentences such as “… I wasted a lot of money on other trading systems until i discovered this system on my own and now I want to share this with you…”
Unless you are completely naive and fail to spot the trap, it is justified that you should waste your money on worthless trash such as this.
To conclude, forex trading is a great industry and it has given rise to many wannabe traders. But many are impatient and want to get rich quickly. Marketers make use of this to their advantage.
Capitalizing on this aspect alone, it is no wonder that there are so many marketers. These people disguise themselves as traders sell their ‘best trading system’ to you. The most common reason they give is that they feel generous. So the next time you are compelled to click on that ‘BUY’ button, ask yourself a simple question.
If you have a profitable trading system, will you waste your time selling it for a few hundred dollars?
If you’re in a correct state of mind, you wouldn’t. In fact you would cut yourself off from the noise and just focus on building your trading equity.