Sunday, September 9, 2007

Currency Trading Systems - 5 Tests to Find the Best Systems

Heres a startling fact: Over 95 percent of the currency trading systems promoted by vendors cause traders to lose their money.

So, how do you find one of the 5 percent of trading systems that make money better yet, make big consistent profits.

Here are 5 tests you should apply, in order to find the best systems to incorporate in your Forex trading strategy - thus helping you and achieve big currency trading gains.

1. The Track Record

As the old saying goes, the proof of the pudding is in the eating - and the first place you need to start with any trading system is the track record.

Look for a system thats been used by the vendor - and made real dollars, in real trading.

The problem is, you wont find many systems that qualify.

Youll normally be given a hypothetical track record. Although these systems havent actually been traded buy the vendor, you can see if theyll work for you, by paying attention to the following points:

. Is it tracked in real time? Some ratings agencies do this and calculate profit and loss. This is almost as good as a real time track record - and well worth considering.

. If the system isnt tracked in real time, then dont buy it - move on!

Anyone can produce a track record knowing the closing prices - and most vendors do this - and hope youre naive enough to buy it. The track records are simply made up, and not worth your consideration.

In conclusion, a currency-trading system either must make real profits, or be tracked in real time - to show that the logic that provides the trading signals is soundly based.

2. The logic

Make sure you understand the logic (even if the system is successful). The reason for this is, you must have confidence in the trading systems ability to make money even when it hits a losing streak.

If you dont understand the system, then you wont have confidence in it - and youll lack the discipline to follow the system. If you dont have the discipline to follow a Forex trading system, then you dont really have a system at all!

3. Personality

Some systems require you to make subjective judgements, whilst other systems are totally objective - you must decide which suits you the best. In addition, are you a patient trader? If so, a long-term system will suit you. If youre impatient, then go for a swing trading system.

You also need to look at the worst peak to valley drawdown, using the systems track record. What is the worst loss you would have taken? - And how long did it take to recover?

Are you comfortable with it? Always assume the worst drawdown is to come - and be prepared for it.

Finally, how much work does the trading system need to operate - and do you have sufficient time to operate the system?

4. Find out about the vendor

How long have they been in business? Are they traders themselves?

Ask many questions - and carefully analyse the responses - to see if the vendors answers makes you feel comfortable.

Are they the type of people who you are comfortable working with? Do you think that youll get support when you need it? Start asking questions and youll soon find out!

5. Guarantee

Never buy a currency trading system without a guarantee of satisfaction.

Most vendors who have confidence in their system will give you a money back guarantee and sufficient time to test the system. You should also carefully check the terms and conditions of the guarantee and if you're not happy with them, pass the system by. Somebody will be offering another new trading system for sale before long!

Final Words

Successful currency trading systems are out there - you just have to find them. If you do find a good trading system, it can pay back the purchase price hundreds, maybe even thousands of times over.

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