When I first started to trade the forex market I was all “caught up” in this idea about having a trading system. It sounded so good to have a solid system to follow. No need to make any decision, just follow the system. Consistent profit over time. I even heard some banks use them.
Then I learned they could stop working. You would have to be able to construct a new one. You need to know when to not trade your system, for example during macroeconomic news. Perhaps you need two or more systems, one for trending and one for ranging markets.
Even later I learned you should only focus on one system and “own it”. You will need to know when to follow a signal from your system and when to not. At that point all the benefits from having a trading system were lost. What about all those other trading opportunities I would miss because my system didn’t cover them?
To trade the forex is something very complex, it’s like riding a bike or driving a car. Do you really think it would be easier to construct a robot that could ride the bike for you than just learn how to ride the bike?
If you are going to be a trader there are a lot of things you need to keep track of: technical, fundamental, news, the stock market, commodities, options and most important, market psychology. They all come together. In the end what drive the market are the decisions of all its individual players combined.
Trust me and don’t waste your time on any trading system. Simply learn to trade the market instead. It’s okay if you want to start out small and only focus on some things. In fact, I think you have to as you need to develop your own trading style.
However, this does not mean you shouldn’t have any trading rules. For example: only risk 1% per trade, only trade certain hours, do not trade when you’re not feeling well. Nevertheless, feel free to re-evaluate these rules as you get more experienced.
Maybe there are some trading systems out there that do work, and maybe some banks and hedge funds do use them. It still doesn’t necessarily mean it’s a good idea. Big money gone wrong has happened before, just think about the recent credit crunch.
Even if you could do some advanced quantitative research, which would be very costly to do as an individual trader in one way or another and the time would probably be better spent just studying the market, you are still stuck with a system that depends on historical patterns and patterns do break sooner or later.
Check out the history of quant funds, it’s not that great. I think you will be far better of as a discretionary trader. The market will always move and good traders can adapt. That’s way trading is so competitive, cause you have to constantly adapt and learn new things. It’s not something that you finally will figure out to 100%.
Most of us probably understand that a google search for forex systems will return mostly scam sites. However, I was pretty deep into this idea about having a trading system. Spending really a lot of time at elitetrader.com reading different guides. It’s a huge industry: backtesting software etc. Today I wish I hadn’t spent that much time on it. Nevertheless, from experience you gain insight.
Last update: 2012-04-07 13:25