Today we are going to look into what is a forex trading system, why it is important and how to progress your trading system as you gain experience. I will also be going over some of the rules involved in my trading system – the 30 pips a day system, and discussing why I chose this system for myself.
Have you ever placed a trade and it went up into nice profit, you are thinking great this trading the markets thing is easy. Leave this trade it will keep going, and I am about to make a load of money. For it to reverse and go against you and turns into a losing trade where you are left wishing you had taken the profit, or even cut the trade off as a small loss instead of taking the big loss? I know I have for sure, many many times.
I didn’t really have a plan for my trades, I had no system in place to determine my entry, my exit or how to manage my trade. Don’t get me wrong sometimes I would take the profit and it would work out. Then I’d place a similar looking trade and expect it to do the same but it went the other way and I gave all my profit (and sometimes more) back to the markets.
What is a Forex trading system?
Investopedia definition: “a forex trading system is a method of trading forex that is based on a series of analyses to determine whether to buy or sell a currency pair and set procedures to determine the entry and exit strategy as well as the risk management”
To me personally a trading system is a way of limiting the huge amount of uncertainty in the forex markets and a way of giving yourself an extra edge and a plan when you are trading. The basic idea of a system is that it provides you with the key parts of a trade, the entry, the exit, how many pips to take and how to manage your trade in the correct way. It is a strict rules based way of trading the markets.
Why is it important to have a system?
The forex markets are infinite. The possibilities are endless and anything can happen at any moment, no one can predict the unknown. But what we can do by having a trading system is focus ourselves to look for the same patterns or structures that do repeat themselves. Despite how infinite the markets are, they do have some level or repetition to them. They ‘flow’ if you like. With a system in place we can get into the flow of the markets and be fully focused on looking for opportunities that fit the system. It is much easier to decipher something if you know what it is we are looking for.
Once we have found a set up that fits the criteria then what?
This is where your system really comes into play. Once you have found the setup, entered the trade, you follow the system and it makes trading much more stress free. You are focused on opportunities. Rather, than suffocated by fear. It helps to remove the elements of the unknown (to a certain degree). It gives you a plan to work to, no matter what, that if you stick to. You will gain profits consistently and join that exclusive club of 5% of the traders WORLDWIDE that are truly consistent.
My Forex trading system – 30 pips a day…
My trading system consists of taking profits of around 30 pips per day (hence the name) and following the set signals I have for entering a trade.
30 pips a day? Doesn’t sound like many pips right? Considering I see some people online that take 100 pips per trade or 500 pips a week. It doesn’t actually matter about the number of pips, this can be adjusted as you progress. What is important is the reason I set the 30 pips a day target. Once I hit that target, I stop trading and wait until the following day/session to trade again.
The key reason for setting this target is to train my psychology and trading mindset.
How can setting a target like this help your psychology you say? Well what happens is it develops discipline, restraint and patience in your trading. As a beginner, it is important to work on you mindset as soon as possible.
For the last 2-3 years of my trading career, I have managed to get myself some nice wins, followed by some truly terrible losses. After a few winners I developed over confidence, I thought to myself “Wow this trading is easy, look how much money I made, I made £400 in 2 hours, easy!” This was quickly followed by me losing £600 in the following two hours (True story). I didn’t have the discipline or restraint to STOP trading and protect my profits, I was in an emotional state watching my profits disappear!
The markets are continuous and infinite, as I mentioned earlier. They never stop, but you should! If I had followed the rules, I wouldn’t have been over confident from my winning morning. The £400 would have been banked for the day and I could have started the next day feeling fresh and positive ready to look for more opportunity to GROW my account. Instead, what happened was, I’d had a hugely emotional afternoon of losing (more than I had made) and the following day instead of looking for opportunities I was looking for revenge!
I knew I needed to take action and develop a way to stop this from happening. So instead of aiming for the £££ I focused on searching out the opportunities, collecting my pips and then stopping. This helps me to reduce emotion, reduce stress, reduce losses and develop the key skills in trading:
How to progress your trading system as you gain experience.
Now 30 pips per day is not necessarily going to change your life or your financial future, unless you are using high lots and also high risk. This is very dangerous, because you can’t follow correct risk management doing so – trust me I know I have tried it and done it and lost money doing so! It’s not worth it in the long term.
What you can do however, as you develop the necessary skills needed in trading. Is that you can increase your daily target, or you can enter longer term trades, where you are aiming for key levels of support/resistance or key price levels. This will happen when you build your confidence in your trading and in your system. For now the key part is building that confidence and those foundations.
Once you have developed that strong winning traders mindset, the sky really is the limit for you. And trading will become as easy as you originally thought it would be. A great book to read for developing this mindset and working on areas that will improve you trading is ‘Trading in the Zone’ by Mark Douglas, I will be doing a review on this book in a later post to detail how it has helped me improve my mindset, and also my trading because I have developed my mindset correctly from the bottom up.
I hope this post has helped to give you an insight into what is a forex trading system, why having a system is important – especially if you are a beginner, or if like me you are a trader stuck in the boom and bust cycle, looking for a way to break free and gain the consistency you desire.
You should now understand the reasons behind my 30 pips a day strategy and how this will help me (and I am hoping others) to become consistent profitable traders! The key being follow the rules of your system and let the markets do the work for you.
Happy trading everyone and may the profits be with you..