Archive for July, 2010

How to Test Foreign Exchange Systems

First you can use backtesting. Here you take your system and figure out on paper how well it might have done on the recent historical market, i.e. The last half a year or whatever period you choose. This does not take too much time because you can rapidly scroll through historical charts looking for the signals that would have led you to make a trade if you had been operating your system live at that time.

Backtesting should give you an idea of whether a system has potential.

For that reason, it is best to backtest over the longest possible time and perhaps split your tests so that instead of testing, as an example, one entire year when the market might have been especially strong or weak, take the first quarter of year one, quarter two of year two, etc so you test one 3-month period from each year of four years.

The second way to check forex systems is in a demo account. Here you are dealing with the live market but not using real money. Remember that you can test many systems at the same time in a demo account, provided you keep separate records of their performance. Or you can use many demo accounts. In this way you’ve got a better possibility of ending up with at least one profitable system at the end of your period of testing. Forex demo accounts also have got the edge that you are developing your live trading skills and familiarity with a software platform and charting service at the same time as you are running your tests. Most currency exchange brokers will supply free demo accounts which you can use to check currency exchange systems.

Best Currency Trading Systems for Money

If we take a scalping system that makes a mean of twenty pips on a rewarding trade and loses a standard 30 pips on a loss-making trade, with eighty percent of its trades being moneymaking and only 20% losses, this is the edge for this system:

Edge = (80% x 20 pips) – (20% x 30 pips) = 10 pips

That will be a lucrative system and a very good one to use if you had an interest in turning into a scalper. Nevertheless you might find a totally different kind of system that had results that were quite as good. For this system,

Edge = (40% x 40) – (60% x 10) = 10 pips

So these 2 totally different systems have precisely the same results, and the decision on which was the best forex trading system for you would be entirely dependent on your trading style. A good way to test this out would be to operate both systems in a demo account, say for one month each.

This would give you an idea of how successful you’d be operating that system for real. Comparing with back test results for a similar period would stop you from throwing out a system just because it occurred to have a bad month. This could be a handy comparison when selecting the best currency trading system from numerous systems that are profitable in principle.

Posted on July 22, 2010 at 5:21 pm by 51cat · Permalink · Leave a comment
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the Easy Way to Use Divergency

Divergence can be identified from the oscillating indicators, the most popular of which are the MACD, Stochastic and RSI. Any of these running on your day trading chart with prices in either candlesticks or bar chart form can be used.

Bearish Divergence

Bearish divergency exists when the price chart is seemingly bullish but the oscillator is showing a bearish trend.

In that particular situation a line across the highest highs of the price chart will be showing a rising trend. If you’re in this market going long, it is time to get out. If you have a signal to open a trade to go long, the divergence is signalling you not to do it. If you’ve got a signal to open a trade to go short, on the other hand, the deflection is confirming that and you can go ahead. Bullish Divergence

Bullish diverging is the other way round.

The signal is the opposite to the previous one. The divergence is signalling the bearish trend is coming to an end so you can close short trades and open long trades if that fits with the other signals of your system.

Of course no system is 100% correct and that applies to using deviation in trading just the same as anything more. Enhance your profits by spotting patterns in deviation from the indicators on your day trading chart.

Posted on July 8, 2010 at 5:21 pm by 51cat · Permalink · Leave a comment
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Currency Trading Fund Management for Profit

In this fx trading tutorial we will look at the easiest way to manage your money so as to have the highest probability of making profits, instead of losses. Everyone knows that foreign exchange or FOREX trading is dodgy, but there are lots of things that we can do to scale back the hazards.

Most new traders spend too much time attempting to find the ideal system and not enough on other aspects of their trading. Having a system that ‘works’ is not a warranty of a smooth ride to millionaire status, just as having a car that works isn’t a guarantee of a smooth ride to the next town. In fact we will take the analogy a step further and it’ll illustrate the point far better. A professional driver takes that auto and drives it carefully and safely to the next city. Then we have two amateurs. Let’s forget the driver’s licence for a moment.

Posted on July 6, 2010 at 5:21 pm by 51cat · Permalink · Leave a comment
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