Forex Trading: The Perfect Forex Trading System

Trading in the Forex market has become popular in the last few years. However, only 10% of traders achieve consistent profitable results. One of the main reasons for this is that Forex traders are focusing on the wrong information. They have forgotten about the most important factor, Price Behaviour.

Technical Indicators

Studying and analysing technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) are what most successful Forex trading systems consist of. Technical indicators are just a series of data points plotted in a chart. These points are derived from a mathematical formula applied to the price of any given currency pair. That is to say, it is a chart of price plotted in a different way that helps us see other aspects of price.

Price behaviour dictates how an indicator will act, thus this should be taken into consideration when it comes to any trading decision made. The readings from technical indicators are based on price action. For example, if the price has gone up enough to make the short period MA crossover the long period MA it creates a long signal. Many traders see this as "the MA crossover made the price go up". However, it happened the opposite way, the MA crossover signal happened because the price went up. Thus price behaviour should be taken into consideration when trading decisions are made.

Trading decisions based only on technical indicators give less accurate results. For example, a long signal generated by a MA crossover as the market reaches an important resistance level; when the price suddenly starts to bounce back off the important level there is no reason on taking the signal, the price action is showing that the market does not want to go up. Most of the time, under these conditions, the market will continue to fall down, no matter the MA crossover. However, this does not mean technical indicators are not an important aspect of trading. They help show certain conditions that are difficult to see by watching pure price action. When making the decision, price action consideration into Forex trading system will generate higher probability trades.

How to create a Perfect Forex Trading System

Firstly, the trader should find the trading system that fits their trading personality otherwise it will be difficult to understand it. Each trader has different needs and goals, thus there is no system that perfectly fits all traders. Researching on various trading styles and technical indicators is crucial. This allows the trader to find a concept which perfectly works for them. As well as that, knowing the nature of the technical indicators chosen is essential.

Secondly, price action is incorporated in the traders system. Thus, the trader will only take long signals if the price behaviour tells them the market wants to go up, and short signals if the market indicates that it will go down. Thirdly, and most crucial to achieving the perfect Forex trading system, the traders chosen system has to be followed rigorously. It should first be tested out and then it can be moved to a mini forex account. When finally comfortable and being consistently profitable, the system can be applied to a regular account.

By following the guidelines above, the creation of a perfect forex trading system should allow for higher rates of return.

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