Forex Trading System

Forex Trading System

It seems that everywhere you look, you see advertisements for software promising accurate buy and sell signals and profits with every trade. Just have a look at some captions of the adverts I have seen!

“I’ve Finally Cracked the Forex Code”

“ Make thousand pips every month”

“ Trade Forex with a secret formula that only a handful of Traders use” The list is endless.. These so-called killer systems don’t come cheap, costing you thousands to buy. However with just a little bit of effort, you too can “crack this secret code” yourself.

Once again let me assure you, from my experience and knowledge of being a trader for the past 20 years, that there is “NO Secret Code”, “NO Killer Systems”, “NO Holy Grail”, and “No Unique Discoveries”.

In my opinion most of these adverts are no more than scams. It may not make YOU rich, but it will certainly make the Vendor’s millionaires. Most of these secrets and codes or discoveries are readily available to you. The only secret is that YOU don’t know how to use these simple strategies! Or nobody has shown you how to use them correctly.

This is precisely what I am going to do in my book – “ The way to Trade Forex”, I hope to hold your hand and show you step by step how to create a killer trading system of your own. However, the fact is that many traders are simply lazy and cannot make time to plan or create a system.

YOU have a choice, either become a winning trader or continue to lose money!


What Is a Trading System?


A trading system is simply a group of specific rules, or parameters, that determine entry and exit points for your trade. These points, known as signals, are often marked on a chart in real time and will prompt you to pull the trigger.

Here are some of the most common tools used to construct a trading system-

Chart Patterns

Moving Averages

Stochastics

Oscillators

Relative Strength

Bollinger Bands

Elliott Wave

Often, two or more of these forms of indicators will be combined in the creation of a rule. For example, the MA crossover system uses two moving average parameters, the long-term and the short-term, to create a rule:

FX trading school

Advantages
So, why might you want to adopt a trading system?

It takes all emotion out of trading – Emotion is often cited as one of the biggest flaws of individual investors. By cutting down on these human inefficiencies, system traders can increase profits. Apart from going through lot of strategies in this book so that you can construct your own Trading System, I am also devoting lot of space in psychology of trading, without which a trader can simply not succeed.

It can save a lot of time – Once an effective system is developed and optimised, there is little to no effort necessary on the part of the trader. Computers are often used to automate the signal generation.

Developing an effective trading system is by no means an easy task. It requires a solid understanding of the many parameters available, the ability to make realistic assumptions, and the time and dedication to develop the system. However, if developed and deployed properly, a trading system can yield many advantages. It can increase efficiency, free up-time and, most importantly, increase your profits.



Designing a Trading System


In my book “The Way to Trade FOREX”, I discuss many of the successful and profitable trading strategies that I have made use of from most of the Tools mentioned above. In addition as a follow up service, I am also extending a free 1 month mentoring so as to help you not only devise a Trading system, but also help you in preparing a Trader’s Plan or assist with your Trader Psychology.


Here are some of the key factors to keep in mind when designing a trading system in the FOREX:

1. The liquidity and the volume in the Forex market is huge, therefore making trading systems more accurate and effective.
2. Most brokers do not charge commissions in this market, only spreads Therefore, it’s much easier to make many transactions without increasing costs. Some brokers offer a very low pip spread.

3. Compared to the amount of equities or commodities available, the number of currencies to trade is limited. But because of the availability of ‘exotic currency pairs’--that is, currencies from smaller countries--the range is not limited.

4. The main trading systems used in FOREX are those that follow trends (a popular saying in the market is “the trend is your friend”), or systems that buy or sell on breakouts. This is because economic indicators often cause large price movements at one time.

5. A good quality charting package, I use the eSignal and would highly recommend this package to any readers.

In my long experience of Trading, I have read many books on trading and technical analysis. I have come across very few books, which focus on the importance of trading plans and trading systems and assisting their readers in creating such a system. This is precisely what this book is aimed at, i.e. Assist you in creating your own killer trading system, having a trading plan, and finally a follow-up service.



Overcoming Fear

How do you define fear? “A strong emotion caused by anticipation or awareness of danger, it implies anxiety and usually the loss of courage.” This definition of fear is useful in helping define the issues that traders face when coping with fear. The reality is that all traders feel fear at some level, but the key is how we prepare to address our concerns related to taking on risk as a trader.

Mark Douglas, in his book, ‘Trading in the Zone’, says that most investors believe they know what is going to happen next. This causes traders to put too much weight on the outcome of the current trade, while not assessing their performance as “a probability game” that they are playing over time. This manifests itself in investors getting too high and too low and causes them to react emotionally, with excessive fear or greed after a series of losses or wins.

All traders will encounter fear at some stage, no matter whether you are a professional or a novice trader, this seems inevitable, and to succeed and fight fear, traders will have to work through this positively. Winning traders manage their fear, while losers are controlled by it.


Winners take positive action in spite of their fears.

Two of the greatest fears that a trader will encounter can be,

1. Fear of Loss

2. Fear of Letting a profit turn into a loss Fear of a Loss



Fear of Loss

No matter how skilled you may be in your technical analysis, or your study of fundamental analysis, or your having devised some brilliant trading strategies – but you may still face roadblocks on becoming a successful and a profitable trader. Why? – Overcoming fear of losing money. I have never met a trader who really likes losing money – at the same time I have never come across any trader who has NEVER lost any money. I know of one leading “guru” on charts and technical analysis in UK, who regularly lectures at seminars, once admitted that despite being brilliant in his study of technical analysis, he has failed miserably in his trading, having blown his account many times – now he just concentrates on teaching trading to others!

Fear of losing is not a problem, but it is how you handle the loss. A trader, who is relaxed, can look forward to another trade. Your success or failure in trading depends on your attitudes towards your gain as well as losses – and how you handle them.

The market does not know that you, the traders exists, you or for that matter any trader cannot do anything to change the market or influence it. Only YOU can control your behaviour.

Whether it is a big drawdown on an account, or a good profitable trade, a professional trader uses his head to stay calm and will look for his new trade. Only a novice trader will become excited and depressed. You are simply wasting your precious nervous energy! The primary difference between a professional trader and a novice trader is how they handle a loss. One of the greatest reason for a lack of success in trading is because most traders played it safe, they are so afraid of losing that they simply do not pull the trigger, even when they have a great trade! To a professional trader, winning means being unafraid to lose. Imagine how many times did you fall down, before you finally learnt to ride a bike? Or how many times did the baby fall down before the child went from crawling to walking to running?

So for most novice traders, the reason they do not win in their trading is because the pain of losing money is far greater than the joy of being a winning trader, on the other hand losing inspires a professional trader, for he will look at that as a way to learn from that loss and he will always ask the question, how can I profit the next time? The winning trader will have a trading journal, where he records his trade; he will pull out the chart, and study it carefully, why the trade made a loss. A professional Trader is more concerned about avoiding a big loss, and less concerned about small losses.

One trader that I had recently coached had an overall winning trade of 80%, yet his overall monetary record is of having a massive loss. He likes trading stock futures, particularly the stock Google, had many, many successful trades on the long side, but finally he went short at $179 and at the time of writing this book, he was still short with the price at $198. He had many opportunities to come out with a small loss, but “he did not want to take a loss”. This position has stopped him focussing on new opportunities.

The longer you can stay in the game with a sound trading plan, the more likely you will start to experience a better run of trades, that will always serve you well in times of temporary trading slumps. Being a cricket follower, I see that even a world-class cricketer goes through a lean patch, be it Botham, Tendulkar or Richards – But they all come back with a bang, so it should not be different for a trader.

What is important is how well you execute your trading plan, and stay focussed with ruthless discipline. With a good trading plan you should be able to have an entry and exit strategies, which you will action decisively and not hesitantly.


Fear of letting a profit turn into a loss

I am often asked when do I take my profit? - I simply say, “Go with the trend! – Let the profits run, and cut the losses short” But what do most Traders do? They SNATCH PROFITS and let the losses run! Too many traders want to lock in a quick profit to guarantee that they feel like a winner.

In the above example of a trader who was trading Google, had he just followed the above rule, of letting the profits run and cutting short the loss, he would have quadrupled his equity. Yet now he is close to getting wiped out. He is now saving money from his full time job, to fund his account to have another go!

So when do you take profits? For example I tend to break my trade into 2 lots, or 4 lots, depending on what time frame I am trading. So lets say If I am trading a shorter term time frame, I break my trade in 2 lots, so that as soon as I am say 30 points in profit, I close 50% of my trade

and then for the remaining, I move my stop to break even. This way I am guaranteed that I will not lose! I will let the second lot run and I am seeking to ride the position with a trailing stop on the remaining portion of the position. Quite often I get stopped out, but imagine if only 2 out 10 trades you catch are a “big move” – what would that do to your bank balance! – The key is patience.

If however, I were trading a longer-term time frame, I would break the trade in 4 parts, taking 25% profits gradually, and at the same time trying to catch the big move. This strategy has given me the most confidence.


In 2003 I went long on the Nikkei Index, after it broke out of its long downtrend. I was so confident that the bottom was made here, having started of with a wide stop I was now hoping to ride this all the way up! The position was broken down into 4 parts, i.e. 25% each portion. The target for each portion was 250 points, 500, 750 and finally 1,000 points. As soon as my 250 points were achieved, I moved my stop to a Breakeven point in money terms, then a limit order to take profits as the Index went on a run! One of my Trader friends said “ I was crazy” – subsequently he ate his words. In so many years of my trading experience, I have yet to come across anyone, unless they have not told me, to have achieved a thousand points. All you need is faith in your system, with discipline to follow your goal and a lot of patience! One of my goals is to target a point gain of 5,000 points on Google, either on a short side or Long. You will know of it, when I achieve it So just how do you achieve the faith in your system, the discipline and patience? In my opinion, for a novice trader, it is vitally important to have some sort of consultancy from experienced traders or have a trader’s coach to guide them. Few thousands spent on being mentored, will more than be paid for not only from the profits that you will make as a result – but also the losses you will not sustain. Refer to the section “A trading coach” for more information.

You have a choice, and only YOU, can make that decision

Jay Lakhani was born in Malawi, C.Africa and came to the UK when he was 18. He is a professional trader and has been involved with markets since his early twenties. He has

extensive experience of both the US and UK stock markets – Trading in derivatives, Forex, Index & Stock futures, and Commodities.
Jay was introduced to the glory of the Stock market by the Lady Thatcher’s Privatisation programme in the eighties, and has never looked back. He has survived a number of stock

market crashes, including the crash of 1987 – an experience that has made him a better trader today. Over the years, he has developed unique trading systems and strategies, which have made him into a successful trader.
One would say that Jay is blessed with a mind that finds creative solutions to problems; a kind of a person that sees multiple solutions, he has a very inquiring mind. Once he is shown a strategy, he will always look at ways at which it can be improved. Jay uses Technical Analysis in his trading, and believes that successful trading is based on your Strategies and Techniques – your system. He also believes that more emphasis should be put on the trader psychology and having a disciplined money management.
 
Jay is also the Internet’s foremost Forex coach and mentor, and teaches his system to individual investors. For more information about his training and mentoring programme, go to http://www.4x4u.net/

Prior to becoming a full time trader, Jay was an Accountant, having worked with large companies such as British Airways and Visionhire – a Granada Company. Later on, Jay was working as a Financial Planner specialising in Portfolio Management and Tax Planning.