Do Trading Systems Work?

I’m staying on the trading system subject today because I was reading a transcript of an interview performed yesterday between FXSTREET and Markus Heitkoetter, President of Rockwell Trading.   The subject was "Trading Systems: Do They Really Work?"

Markus’ most important comments follow:

• - Like all other ventures, "having a plan" will give you an edge
• - A trading system consists of a set of rules; in it’s simpliest form a trading plan (or system) has entry and exit rules.  More sophisticated trading plans include position sizing and money management
• - You MUST have a trading plan to succeed
• - At a minimum your trading plan should consist of entry and exit rules
• - The 2 types of exit rules are stops (to protect your capital) and profit targets to realize profits
• - The "lack of the trading plan" is the No. 1 reason why traders fail
• - The easiest way to follow a trading plan is to automate it
• - Trading with a system removes emotions from trading
• - If you’re looking for trading action, don’t choose a trend-following system.

Here are the top six reasons why traders fail:

1.    Lack of a Trading Plan
2.    Lack of Discipline to Follow the Plan
3.    Failure to Control Emotions
4.    Failure to Accept and Limit Losses
5.    Lack of Commitment or stop trading using your system after the first loss
6.    Over-Trading

Trading a system helps you overcome the top six mistakes

FP-1 Trading System

I’ve started trading my new trading system which I’ve simply named FP-1.   I’ve been spending a lot of time tweaking it over the last couple of days.  I’ve made it quite simple to indicate a buy and a sell opportunity.  The red circle indicates a sell and the green circle a buy.  If you see a blue circle, this is a losing exit.  If you see a yellow circle, this is a winning exit.

 

 

 

 

 

 I just went went short on the EUR/USD where the last red circle is.

Developing a systematic approach to trading

After days and days of backtesting, I think I have found a simple system that works for me.  I backtested it over the last 5-6 months on the EUR/USD 60-minute charts.  Of course I understand that there are no guarantees that this system will work well in the future too.  But it does feel really good to have designed a system that I can use going forward.  My goal over the next month or so is to trade religiously using this system and being the gambler I am do so using my live trading account.  It actually feels really great to have a system that is going to generate long, short, cover, and sell signals right on my charts.  Here are my backtested results:

 

 

 

 

 

Another tough week

I had a pretty good CAD trade before my 3rd lot closed out this morning but I missed the bigger move upward.  No need to be greedy though.  Other than that, I’ve had a pretty bad week. 

I cannot say that there haven’t been traces of impulsiveness but generally I’ve been following my stop loss and limits.  This is a good thing.  1 mistake that I have made was making 2 trades because of the advice of others.  This is where I lost a majority of my money this week.  There is no problem with taking the advice of another if you also did the research and study.  But what I did was blindly go with what 1 other person recommended.  I’ve been receiving John Carter’s newsletter this week during a 2 week trial and his latest recommendations didn’t work out.  This isn’t a knock on him because you obviously have to expect losses.  What hurts more to me is that I was not in control enough of myself to make my own decisions.  The only decision I made was to read a newsletter and place a trade exactly as it was written.  If I didn’t want to do any thinking, I shouldn’t have been trading. 

What’s done is done.  I always preach to myself to make my own decisions and live by them.  You cannot expect to make money by listening to a newsletter here and a newsletter there.  That’s a good way to lose your money and fast.  If I subscribed to John Carter’s trading room or was an avid follower of his newsletter, I might expect better results. 

One exciting thing this week has been the development of my 4th custom indicator.  Just like every indicator, it is just a derivative of price but it is suited to my preferences.  I can’t say much more because I don’t know if this indicator will work out yet.  I’m still testing it but the results look promising so much so that it surprised me.  I have a firm belief that there is no holy grail.  I understand that.  But there is a system that you can create that will work in certain market conditions that will consistently make money.  With my programming experience, it is my thought that if I can create such an indicator, it can be totally automated.  This doesn’t mean that I don’t want to study charts.  Supplementing this with a steady money making system is like having another employee working next to you making trades and money for you.  You have to give it direction but generally it works primarily on its own.

March Issue of Currency Trader Magazine

After all of our comments regarding the lack of substance regarding ichimoku chart analysis, the March issue of Currency Trader Magazine fills the gap.  There is a 6 page article, "Demystifying Ichimoku analysis."  I'm looking forward to reading it.  In addition, the new issue contains:

-Dollar Bull: Can the buck stay a step ahead of pundits?
-Japanese Yen: Marching to its own drummer
-Currency Basics: All about the interbank
-Currency System Test of the Trend Strength Indicator

Content Removed: Download from http://www.currencytradermag.com

A Forex Trader Speaks His Mind

I’m posting an email I received from a fellow participant of Raghee Horner’s webinars today.  He has been utilizing Raghee’s methods for the last year and goes into the successes and failures he has had with them.  Keep in mind that he is a beaten down trader who started out with $30,000 and now has $3000 left.  I don’t necessarily agree with everything he says.  I don’t think because 1 person is unsuccessful at something that no one else has a shot.  One of his final sentences is "Do not think you’re going to realize your dreams by day trading."  I don’t believe this and won’t believe this.  I feel like his story will be beneficial:

I would say her setups happen quite a bit if you scan all the pairs. I am not good at position trading or sitting on trades, so I found it really hard to utilize the large time frames. I like to be in and out, a day trader. Her system is like any system, it gives you a method for entries and exits. Each entry has 50% chance of moving in your direction and her method gives you a slight edge or helps you gain a higher probability of being on the winning side. No trading system is consistently profitable, your either on the winning side or your not. The key is to get in when your system tells you to, act on your systems signals, utilize stops or get out as soon as the trade tells you it’s not going in your direction.

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