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Forex Trading: The Perfect Forex Trading System



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Futures Trading Systems SpacerTrading the Forex market has became very popular in the last fewyears. But how difficult is it to achieve success in the Forextrading arena? Or let me rephrase this question, how manytraders achieve consistent profitable results trading the Forexmarket? Unfortunately very few, only 5% of traders achieve thisgoal. One of the main reasons of this is because Forex tradersfocus in the wrong information to make their trading decisionsand totally forget about the most important factor: Pricebehavior.

Most Forex trading systems are made off technical indicators (amoving average (MA) crossover, overbought/oversold conditions inan oscillator, etc.) But what are technical indicators? They arejust a series of data points plotted in a chart; these pointsare derived from a mathematical formula applied to the price ofany given currency pair. In other words, it is a chart of priceplotted in a different way that helps us see other aspects ofprice.

There is an important implication on this definition oftechnical indicators. The fact that the readings obtained fromthem are based on price action. Take for instance a long MAcrossover signal, the price has gone up enough to make the shortperiod MA crossover the long period MA generating a long signal.Most traders see it as “the MA crossover made the price go up,”but it happened the other way around, the MA crossover signaloccurred because the price went up. Where I’m trying to get hereis that at the end, price behavior dictates how an indicatorwill act, and this should be taken into consideration on anytrading decision made.

Trading decisions based on technical indicators without takingprice action into consideration will give us less accurateresults. For example, again a long signal generated by a MAcrossover as the market approaches an important resistancelevel. If the price suddenly starts to bounce back off thatimportant level there is no point on taking this signal, priceaction is telling us the market doesn’t want to go up. Most ofthe time, under this circumstances, the market will continue tofall down, disregarding the MA crossover.

Don’t get me wrong here, technical indicators are a veryimportant aspect of trading. They help us see certain conditionsthat are otherwise difficult to see by watching pure priceaction. But when it comes to pull the trigger, price actionincorporation into our Forex trading system will definitely putthe odds in our favor, it will generate higher probabilitytrades.

So, how to create a perfect Forex trading system? First of all,you need to make sure your trading system fits your tradingpersonality; otherwise you will find it hard to follow it. Everytrader has different needs and goals, thus there is no systemthat perfectly fits all traders. You need to make your ownresearch on various trading styles and technical indicatorsuntil you find a concept that perfectly works for you. Make sureyou know the nature of whatever technical indicator used.

Secondly, incorporate price action into your system. So you onlytake long signals if the price behavior tells you the marketwants to go up, and short signals if the market gives youindication that it will go down.

Third, and most importantly, you need to have the discipline tofollow your Forex trading system rigorously. Try it first on ademo account, then move on to a small account and finally whenfeeling comfortably and being consistent profitable apply yoursystem in a regular account.

About the author:

Raul Lopez is a full time Forex trader and founder a high quality Forex training company.


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