Here we will look at how to use currency-trading systems to catch the big profits from the big moves, and how to pick a currency trading system that will be successful. There are many currency-trading systems for sale, but many dont live up to the hype in the sales literature, but finding one that makes money is easy - if you know what to look for. Trend Following - The Key to Big Profits As economic cycles of boom and bust in countries, take years, so do the currency trends that reflect these cycles. The big profits are made by traders who can spot and trade these big trends for big profits. There is no better way of doing this than using a currency trading system that can lock in, and hold these long-term trends for maximum profitability. A Mechanical Approach to Profits Currency trading systems remove the emotional component from trading - they dont care why currencies move they just attempt to make a profit when they do! Many traders have a problem with emotions when trading, rather than running profits and cutting loses, they snatch profits early (simply to bank a profit) and run losses (as they hope they will turn around) and of course, this strategy will lead to losses over the longer term. A trading system gives you discipline, which is vital to trading success. Dont underestimate the effect of a lack of discipline - its the major reason traders lose! The Growth in Computerized Trading The developments in computer software, and the rise in popularity of the Internet, have seen system trading become more popular than ever. For example, packages such as Tradestation and Supercharts, allow traders to build and test systems using a variety of technical indicators, however today more traders are buying systems that are ready made. The idea is they load the program, follow the signals, make big profits, and dont have to employ the services of a fund manager. There are some excellent currency trading systems out there, and the following checklist will help you find one that can make big profits longer term. Finding a Technical Trading System that Makes Big Profits Always follow this checklist when buying a currency trading system. 1. Understand the logic of the system - if you dont understand the logic, you wont have the discipline to follow the system. Also, avoid black box systems where the logic is not revealed. 2. The system should aim to catch the long-term trends, not short term moves. Its the longer-term trends that make the profits, so buy a system that targets them. 3. Simple systems are best theres no correlation in currency trading systems, between complexities and making money. A systems rules should easily be understood, and not require a degree in mathematics! 4. Study drawdown from peak equity and overall profitability over time. Always assume your worst drawdown is ahead of you, and be prepared mentally to take it. Also be aware of simulated track records that have little drawdown, they probably wont work in practice - anyone can simulate profits with hindsight! Warning! - Beware of curve fitting This is where a simulated track record is produced and the system is then fitted to past data to ensure profits. One trader likened this to shooting at a barn door and drawing circles around each shot afterwards to make a bulls-eye. A clue to a curve fitted system is one that has little or no drawdown and huge profits, or has a huge amount of optimization and variables instead of ONE straight set of rules. 5. Don't ignore simulations totally; if the logic is soundly based, they may work, and many do. 6. Get to know the vendor selling the system - ask as many questions as you can, and check out his record, and philosophy of trading. Make sure you feel comfortable in the system and the support you will receive before buying. |
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