The Ingredients Of A Successful Forex Trading System

Some people spend years trying to come up with a successful and profitable forex trading system while others save themselves the time and effort and either opt to buy a commercial trading system instead, or seek out a mentor who can share with them their profitable system. One thing is clear though and that's that there are certain characteristics that successful trading systems always have.

The first of these characteristics is that there is always a high level of repetition. By this I mean that successful trading systems will generate consistent profits by trading the same trading patterns over and over again. There is little or no deviation between each trade.

In fact this is why technical analysis is so effective because the same trading patterns occur over and over again so by using a trading system that is able to detect and trade these recurring patterns, you can make consistent long-term profits. Successful forex trading should not be exciting and exhilarating. Instead it should be like a full-time job where your only role is to trade the same technical indicators and look for the same set-ups all day long every day.

Another key ingredient of a profitable forex system is that it uses and applies sound money management principles. This means that ideally it should be set up so that it's target profit from any one trade is always further away that the stop loss. So for instance if the stop loss is 30 points, then a good trading system should be able to generate profits when aiming for 60 points or more from each position.

While every forex trading system should ideally have a high win/loss ratio you can very often still make decent profits with a lower win/loss ratio if you have a good stop loss strategy. Indeed if your system is set up to cut your losses early and let the winning trades run as long as possible, then you can have a very profitable system on your hands.

My own trading style is based on this kind of thinking. I have set trading conditions that need to be met before entering a position, but if these conditions change then I will get out as soon as possible, which usually means I get out quite cheaply. Yet if a position goes in my favour, then I will usually close half my position for a decent profit and let the other half run for as long as possible, which can sometimes yield several hundred points profit.

So to sum up, a successful forex trading system is basically one that applies good money management rules, cuts losers early, lets winners run, and is based on trading the same trading patterns over and over again.

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