🤫 The secrets to success are not really secrets at all!
Traders who succeed in the forex market are those who have developed a successful strategy. And such strategies can be replicated and taught.
🏡 Building a trading system is a little like building a house. When you construct a house, you decide how many rooms it will have, the layout, how many floors and so on. These decisions are based on your needs (objectives), budget (trading capital) and what suits your personality (psychology). Similarly, when you develop entry and exit rules for a forex trading system, you choose things like risk/ reward ratio, win rate and the number of trades over a time period (i.e., five trades a week). Your choices here will be a reflection of your needs, budget and goals.
🤓 Take a look at these three basic examples of Forex trading systems.
System 1 generates 10 trades a month with a 90% win rate. Winning trades make $100 and losing trades lose $1,000.
System 2 generates 80 trades a month with a 60% win rate. Winning trades make $60 and losing trades lose $50.
System 3 generates 10 trades a month with a 15% win rate. Winning trades make $1,800 and losing trades lose $150.
Before you read on, which system would you prefer?
Note it down along with the reasons why it is your system of choice.
🤓 Here are the results for a month’s trading for each system in dollars:
System 1 with a 90% win rate had a $100 loss
System 2 with a 60% win rate had a $1,280 profit
System 3 with a 15% win rate had a $1,425 profit.
🧐 What do you notice here?
The system that made the most profit had the lowest success rate – and the system that lost money had the greatest success rate.
Now, would you still choose the same trading system you chose above?
When you are developing your entry and exit, the one with the most wins isn’t always the best. Be careful not to fall into this trap.
(As a side note, it is possible to have a system that has a high win ratio and larger losses than profits. It’s just tough if you experience four or five losses in a row, so make sure you position size accordingly.
Traders who succeed in the forex market are those who have developed a successful strategy. And such strategies can be replicated and taught.
🏡 Building a trading system is a little like building a house. When you construct a house, you decide how many rooms it will have, the layout, how many floors and so on. These decisions are based on your needs (objectives), budget (trading capital) and what suits your personality (psychology). Similarly, when you develop entry and exit rules for a forex trading system, you choose things like risk/ reward ratio, win rate and the number of trades over a time period (i.e., five trades a week). Your choices here will be a reflection of your needs, budget and goals.
🤓 Take a look at these three basic examples of Forex trading systems.
System 1 generates 10 trades a month with a 90% win rate. Winning trades make $100 and losing trades lose $1,000.
System 2 generates 80 trades a month with a 60% win rate. Winning trades make $60 and losing trades lose $50.
System 3 generates 10 trades a month with a 15% win rate. Winning trades make $1,800 and losing trades lose $150.
Before you read on, which system would you prefer?
Note it down along with the reasons why it is your system of choice.
🤓 Here are the results for a month’s trading for each system in dollars:
System 1 with a 90% win rate had a $100 loss
System 2 with a 60% win rate had a $1,280 profit
System 3 with a 15% win rate had a $1,425 profit.
🧐 What do you notice here?
The system that made the most profit had the lowest success rate – and the system that lost money had the greatest success rate.
Now, would you still choose the same trading system you chose above?
When you are developing your entry and exit, the one with the most wins isn’t always the best. Be careful not to fall into this trap.
(As a side note, it is possible to have a system that has a high win ratio and larger losses than profits. It’s just tough if you experience four or five losses in a row, so make sure you position size accordingly.