Okay, here we go! It’s time to build your best forex trading system. It won’t be a trading system that’s best for everyone. Rather, it will be a trading system that’s best just for you. It will be based on your own unique personality, trading style, and tolerance for risk.
Remember, the goal here is not to build your best forex trading system that will give you super-high returns. Those systems usually go hand-in-hand with super-high risk, and as a result, they usually don’t last very long. Not only is that NOT your best forex trading system, that’s a failed system in my book.
No, your best forex trading system is one that has longevity. Your best forex trading system will yield consistent profits, year over year. Over time, these profits definitely add up…
…and they’ll continue to keep adding up, slow and steady.
(Keep in mind, “consistent profits” does NOT mean that every trade will be a winner. That’s not possible. Having losing trades is a normal part of any trading activity. With that said, YOUR best forex trading system will consistently put money in your pocket, not take your money away.)
In the following sections, I will show you the exact steps to build your best forex trading system. I will also provide links to specific pages where you can get more detailed information. You can also go directly to these pages from the Navigation Bar on the left.
Before You Build Your Best Forex Trading System
Before we begin, give your motivation a boost by visiting my page on why we conduct online forex currency trading in the first place. Think about your own dreams and goals that you wish to achieve through forex trading.
If you are completely new to forex, it’s best to fully acclimate yourself to the forex basics and currency trading basics.
Also, review forex systems basics to get an overview of forex trading systems. Here, you’ll learn about trading plans and the other components that make up a forex system.
Step 1: Find Your Best Forex Trading System Strategy
This is your first step into building your best forex trading system, and it also happens to be the most difficult. It’s what most forex traders spend the most time and effort trying to discover. No wonder…it’s also the most important step, since your best trading strategy will form the very core of your best forex trading system.
Now I’m not in a position to tell you exactly what YOUR perfect trading strategy is. Only you can determine that for yourself. However, I can help you explore all the different trading strategies out there. I will also show you the safest way to test out new strategies.
Basically, your best trading strategy will consist of one or a combination of the following:
Three Types of Trading Strategies
Manual Trading: This strategy requires the most skill. That’s because everything is up to you. You do all the research; you do all the analysis; and you make all the decisions when to enter a trade, when to exit, and how much money to risk.
Whew! So much responsibility! It’s like you need to attend a forex trading school to prepare you for such an endeavor. Fortunately, I’ve got one on this site to show you the ropes.
When manual trading, most forex traders employ fundamental analysis, technical analysis, or some combination of both:
Fundamental Analysis – Typically requires the trader to make decisions based on the “fundamental” strength or weakness of a country’s economy. Theoretically, this strength or weakness will be reflected in the currency value of the respective country. Data is usually expressed in some type of forex currency market report, such as the very important Non-Farm Payrolls Report in the U.S.
Trading based on fundamental analysis is usually long-term. Think of Warren Buffet’s “buy-and-hold” approach, but instead of looking at the fundamentals of specific companies, forex traders analyze the fundamentals of specific countries.
Technical Analysis – A trader will analyze price charts to forecast future price movement. Forex technical analysis can be as simple as pure price action trading, or extremely complex using multiple technical indicators.
Whatever form of analysis you choose, there are a number of different manual trading strategies that can be used to trade forex online. The sky’s the limit when it comes to all the different trading strategies that can be developed using fundamental and technical analysis.
Signal Trading: This is a nice mix between manual trading and auto trading. If you don’t feel up to the task of finding ideal trade entry points, or if you have a way but wish to automate it, you can employ automated trading software to generate the best forex signals for you. A forex signal system will alert you of ideal trading opportunities, but the decision to actually enter the trade is still up to you.
Auto Trading: Simply put, automated forex trading systems trade for you. Everything is automated through software, which uses a programmed set of trading rules to automatically identify trade opportunities, enter trades, and exit trades. Some even implement money management for you. The most popular automated trading software are Expert Advisors, or “EA’s”, which run on the Metatrader4 trading platform.
Commercial EA’s have gained tremendous popularity these days, probably due to their appeal of making “easy money”. Be careful, however. Most of these “forex robots” are turning out to be scams.
Try to find the best forex trading system review of any commercial EA you’re looking into. It can help you determine an EA’s credibility, especially if the review provides live money test results of the EA. However, do not base your opinion entirely on the reviews you read. Below, I will show you a thorough and safe way to evaluate any EA for yourself.
Regardless of the type of strategy you encounter in your quest to find your perfect strategy, always approach each one with a degree of skepticism. In other words, do not jump in head-first by committing all your trading capital, no matter how promising the strategy sounds. Patience pays here. Remember, it’s YOUR money on the line.
A common mistake that many traders make when checking out a new trading strategy is asking, “How much profit can this system generate?” Wrong! The first question every trader should ask is “What’s my risk?”
Remember, protecting your capital comes first. Making money comes second.
With that said, here is how I approach every new trading strategy. It doesn’t matter if the strategy is manual, signal-based, or automated. This methodology applies to all types.
It’s the safest way to determine the suitability of any trading strategy to your own personality, trading style, and tolerance for risk. It’s a very conservative approach that aims to protect your money as much as possible while testing.
Safest Approach to Evaluate Any New Trading Strategy
Research and Learn: When I come across a new trading strategy that shows promise, I do as much due diligence as possible. How does the strategy work? Is it based on sound trading principles?
I also research the strategy’s history. Who created the strategy? How long ago? Why is it so popular? Is it just that good, or is it popular simply due to excellent marketing?
Finally, I read reviews on others who have used the strategy. What do they have to say about it? Is it a part of their best forex trading system?
Keep in mind, you’re not researching to determine if a strategy is the “holy grail” of forex systems. It’s amazing how many trading strategies out there are marketed this way.
It doesn’t really matter if a trading strategy worked for other traders. Just because it made them profits doesn’t necessarily mean it will make you profits. Conversely, just because it did not make them profits doesn’t necessarily mean it will not make you profits.
Your main job when reading reviews is to get preliminary information on any strengths or weaknesses the trading strategy might have. You’ll be testing the strategy for yourself during the next steps.
Demo Test: When you’re ready to test a trading strategy to see if it will work for you, test it on a demo trading account first. You don’t want to risk any real money just yet, considering you have no personal experience with the trading strategy.
Do this for at least several weeks, preferably several months. The more time you can test the strategy, the better. If, during that time, the strategy is not generating consistent profits, don’t scrap it just yet. Perhaps you just need to make adjustments. If applicable, change time frames, lot size, or any other tweaks you deem appropriate. Try changing brokers.
If and when the trading strategy is making consistent profits, you’re ready to test it on a live money account…
…but don’t fully commit just yet!
Micro-Lot Test: After the trading strategy has made consistent profits for at least several weeks on a demo trading account, you can now test it on real money. However, test it on a micro-lot trading account first. This way, you’re risking only pennies instead of dollars.
You might be asking, “Why can’t I test on a micro-lot account first? I’m only risking pennies after all.”
Well, that’s up to you. My goal is to help you find your best trading strategy using the least amount of risk. If you forego a demo trading account and test only on a micro-lot account, it could get costly, especially if you test many different strategies. Those pennies can really add up. But, it’s your call.
Again, I recommend taking as much time as possible testing on a micro-lot account. Allow at least several months for testing. Give the trading strategy the chance to run under different market conditions. Better to be safe than sorry.
This is worth repeating…it’s YOUR money on the line, so protect it first, grow it second.
Raise Your Risk: Okay, you’ve done your due diligence on a trading strategy. And you’ve spent several months testing it on a demo account and on a live micro-lot account. It’s passed with flying colors and has made consistent profits under different market conditions. And it “feels” right to you. Profits are being made almost naturally.
Congratulations! You have possibly found YOUR perfect trading strategy! You’re now ready to risk more capital to it.
However, continue proceeding with caution. Move up to a mini-lot trading account first. After several months of consistent profits, you can then consider trading on a standard-lot account.
Why continue with a cautious approach? You’ve done your research and the strategy is based on sound principles. It’s gotten great reviews from other traders. You know all about its strengths and weaknesses. You’ve managed to make consistent profits using it on a demo account and live micro-lot account.
Why can’t you just “go for it” and start trading it on a standard-lot account?
Well, must I say it? Yes, I think I should…
Capital protection comes FIRST. Profits come SECOND.
Forex trading is extremely risky. In fact, it’s so risky that most forex traders lose their shirts trading it. Don’t be one of them. Always approach forex trading with extreme caution, and the best way to do that is through proper money management.
Step 2: Build Your Best Forex Trading System Trading Plan
Once you’ve found your best trading strategy in Step 1, make it “official” by writing it into your own Trading Plan. This will form the core of your best forex trading system.
Why write it down? You need to treat your trading as a business. It’s not a hobby. If you think that way, you’re setting yourself up mentally to lose money. You’ve got to treat it as a business. And as a business, your number one goal is to MAKE MONEY. Making serious money requires serious thinking.
business plan best forex trading system Just as any business has a “Business Plan”, your forex trading business has a “Trading Plan”. Outline your trading strategy into your Trading Plan, even if its a signal or automated trading strategy. Review it daily. It’s the only way to stay focused and disciplined, especially if you’re manually trading. It helps to keep your emotions under control.
Emotional trading, by the way, is the biggest reason traders lose money.
It even affects the profitability of automated trading systems. For example, a trader may experience fear when he sees his forex robot incurring a large drawdown on a given trade. He may decide to intervene by manually closing out the trade too early. Chances are, the trade would have closed in profit had he left it alone and allow the robot to run on its own. The trader’s actions might have caused an otherwise profitable trading system turn into a losing one.
If you need help creating a Trading Plan, please refer to my trading plan example.
Step 3: Find Your Best Forex Trading System Broker
You might have already done this during Step 1, but it’s worth looking into further. There are a multitude of different forex brokers out there, each with their own strengths and weaknesses. Some are better at executing certain strategies than others. For example, a forex broker that offers excellent rollover interest rates would be best if your strategy involves the “carry trade”. A broker that offers very tight spreads would be best for scalping strategies (by the way, I can help you find the broker with the best forex spread for any given currency pair).
Depending on your trading strategy, do a thorough research to find your best forex broker. For starters, check out my forex broker review.
Step 4: Find Your Best Forex Trading System Tools
Tools are what you use to execute your Trading Plan. For the most part, most of these will already be provided by your forex broker, including your charts, live quotes, and technical indicators. Since you’ve found your best forex broker in Step 3, it’s likely you’re already using the best tools for your strategy.
However, don’t limit yourself to only the tools that your broker provides. There are plenty of other great tools that are worth looking into, many of them free. Check out my forex trading tool chest to get a free currency rate alert service, economic calendar, glossary, current news video, and much more.
My tool chest also provides information on a virtual private server, or “VPS”, offered by a great company. Although your forex broker may already offer a free VPS with your account, there are advantages of paying for a cheap windows VPS from a third party…definitely worth looking into to optimize your trading strategy.
If your ideal trading strategy involves candlestick pattern analysis, I provide a reference tool of patterns for candlestick charts.
Or you may have developed a preference for classic chart pattern analysis while you were learning to trade forex. I provide a reference tool for these patterns as well.
And for the extreme technical analysts, I also provide a thorough forex indicator reference tool. It provides information on many common (and not-so-common) technical indicators.
Step 5: Maximize the Profits of Your Best Forex Trading System
So you’ve done your research, found and fully tested your best trading strategy that fits your personality, trading style, and tolerance for risk. You’ve incorporated it into an official Trading Plan, which now creates the core of your best forex trading system.
You’ve also done your due diligence and found the best forex broker for your Trading Plan. And you’re using the best tools to execute your Trading Plan, including those provided by your broker and some provided by third parties.
The result? You’re actually MAKING MONEY by forex trading!
The question now remains, “Are you squeezing as much profit potential as possible from your best forex trading system?”
In this final step to complete your best forex trading system, I’ll help you explore ways to maximize your profits. I’ll give you forex tip trading as well as forex secret trading information that can give your profits a boost.
For example, forex introducing brokers can give you cash back on every one of your trades, regardless if it’s a winner or loser. That’s a sure way to maximize profits and minimize losses.
Or you might consider binary option trading instead of spot forex trading as your trading strategy. This has the potential of earning you up to 80% in a matter of minutes! (Be careful, though…high reward also equals high risk).