We will look at a few ways traders decide on the best way to make a decision.
First there is just guessing which way the market is going to go. Now as surprising as it may seem there are many trader who do just that. They take a look at a chart or some news and then decide if they should buy or sell. If they make money consistently then it is hard to argue that this is the wrong way to trade the market.
The problem I see with this type of trading is that it is almost impossible to reproduce results consistently. In other words the trader that trades by instinct can never really pass on his knowledge, as there is no clear rules that he applies to the market on a regular basis. I know a few trader who trade like this but unfortunately I don't know any who have gone the distance and are there year after year.
Traders who apply a method to their trading inevitably have better results. If you use the same criteria to each trade then you at least have a reference point from which to work. If you are losing you can then change specific things in you're decision making process in order to find the right criteria.
By using a method in your trading you are moving towards the scientific approach and just as a scientist will carefully research and record each experiment so should the trader trying to perfect the method he is using.
If you apply XYZ as your reason for entering a trade and you can see after a predetermined amount of trades that it is not working then you can change X, Y or Z until you find something that does work.
Typically the method trader has researched a particular theory he has by doing back testing (applying the theory to historical charts) and comes up with indicators, tools or some other method of determining the entry and exit criteria. If at the end of his research he find that he can make money he will then apply that method to the market.
As he still has to make the decision to enter or exit a trade there is still the human element to consider. Even though his method tells him he should enter a trade for some psychological reason he decided not to take the trade.
There lies the weakness of the method trader. Even though he knows he should enter or exit a trade he doesn't because at that particular moment in time some voice inside him tells him not to do it. The solution is to make it mechanical as much as possible.
Mechanical trading systems. There has probably been more written about mechanical trading systems than any other topic in trading. The premise of mechanical systems is that a particular theory he's been beck tested over a long period of time and has consistently made money.
There is no emotion involved with the decision making process at all. If the system says buy the security then you buy or an order is automatically done for you.
This takes away all the emotional up's and downs and all you have to do is buy the system and supply the money. I have been in heated debates with other traders about the value of mechanical trading systems. Some traders swear by them and others think they are a waste of time.
Which is true only the individual can answer. My own personal experience with systems after having tried a few is that they typically produce unspectacular results and after a time they tend to blow up and lose money.
The other reason I am not particularly fond of systems is that when you experience large draw down (your account goes backwards) you tend to lose faith in the system just before it kicks in.
Trading just as in life there are no correct ways to trade only what suits the individual. Some people will be suited to giving it their best bet whilst other will prefer to use a particular method and yet others will prefer mechanical systems.
It's difficult to argue with a man who is making money. My own personal preference is to use a well thought out method, which is 90% mechanical, but the final decision is left to me. Nothing will beat your own research and hard work.
If you can find a successful trader and ask him to mentor you this will save a lot of time on the learning curve. Learn every thing you can from him and then adapt it to suit your own style of trading.
On closing, ask yourself this question? If you really did have the goose that laid the golden eggs would you sell it?
Forex trading is trading in a pair of foreign currencies such as the U.S. Dollar vs. the Euro. The word ?Forex? is an acronym for foreign exchange. In the process of Forex trading, one currency is bought and another currency is sold in one deal. A foreign market is influenced by the supply and demand of products and services offered by another country. Depending upon the market condition the movement of one currency in relation to another is influenced.
Forex Trading System
A Forex trading system is a method of trading in foreign trade or currency using specific criteria of technical analysis. Though the foreign trade also involves purchase and sale, it is very complicated in that the commodity involved here is currency.
The behavior of one currency with respect to the movement of another currency is highly unpredictable. As a matter of fact, the unpredictability depends upon many factors like the economic condition, political situation, natural environment etc. Therefore, for a lay man sitting in one corner of the world it will be very difficult to understand the phenomenon.
It is here, that a Forex trading system comes into play. The system by means of its research and analysis provides valuable data to the person, employing the system. The findings are supported by charts and other statistical tools which helps understand the situation. The explanations with reasons and arguments enhance the understanding of the subject by the user of the system. The success of any system lies in its reasonable justification in favor of its decision and ultimately proving its recommendation. In fact, a good system explains the situation and leaves the decision to the trader to take himself.
Learn forex trading
Through the system of Forex trading one can learn forex trading using proven methods without having to re-invent the wheel. As already explained, Forex trading is a complicated area, where only a very few have succeeded. We have seen that a Forex trading system is a method of executing Forex trade in a systematic way using specific conditions that must be met in technical analysis. The complicated matters involved in the appreciation and depreciation of currencies in relation to another are analyzed with statistical data collected over a period of time.
The Forex market is not necessarily stable at any point of time. Nor is it moving on a straight line. Various factors affecting the price structure of a currency are analyzed in a systematic way. By this method the system offers many lessons to the practitioner of it. Learning Forex trading acquires more importance in the context of more potential opportunities it throws to the people aspiring to have a career in foreign exchange. On line trading technologies have increased the opportunities the system has created and continues to create.
Many an opportunity is missed because of lack of knowledge. Success in the business of Forex trading requires some discipline, patience, and a considerable amount of training and practical experience. The study of Forex system trading can greatly accelerate the process that otherwise relies on trial and error.
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