Forex Trading Success

The Best Forex Trading System for Forex Trading Success

With an estimated 4 trillion US dollars daily turnover the foreign exchange market is the worlds most liquid and potentially most profitable market to trade. There are however some serious caveats:

To succeed in the Forex markets you need to understand that you are trading up against some of the smartest and most well informed speculators and investors in the world. If you don't have a statistically proven advantage over other traders, failure is virtually guaranteed.

The biggest mistake most new traders make in searching for the best Forex trading system is a 'one system fits all' mentality. It's important to understand financial markets are primarily driven by mass psychology (greed and fear) and price action can be highly variable.

The best Forex trading system for navigating highly variable conditions is a multi-system, multi-market, multi-time frame approach which is adaptive to market change.

There are two primary trading system methodologies a Forex trader can implement:

Trend following
Counter trend following
Variants of the above include intermarket trading and statistical arbitrage (stat arb).

Robust trend following systems typically perform well during extended 'fat tail' moves in the markets, during which time counter trend following systems tend to lose money. Conversely counter trend trading systems typically produce strong gains in choppy range bound markets, while trend following systems experience whipsaw chop and produce losses.

Total risk adjusted returns can be significantly improved by combining counter trend and trend following systems on an account: gains in one system can help offset losses in the other, thereby producing a smoother combined equity curve.

Uncorrelated variants of counter trend and trend following systems can serve to further enhance risk adjusted performance. Hybrid systems include intermarket trading where a counter trend entry can be combined with momentum based exits. This helps produce returns that are uncorrected to traditional trend following and counter trend mean reversion systems.

Intermarket trading as a 'stand alone' system is the best FX trading system to trade where capital constraints dictate trading just one system. Many Forex brokers now offer micro lot trading which helps to remove barriers to entry and allows small account holders to diversify across multiple systems, markets and time frames without the usual capital constraints associated with forex futures derivatives.

Money management is a crucial and much overlooked component of successful FX trading. Trades are best sized according to 'worst possible case scenarios' so as to contain losses and keep account draw-down within tolerable limits.

The best Forex trading system to trade is ultimately dependent on a number of factors including: a traders personal risk tolerance, risk reward objectives and account size. Assuming the goal is superior risk adjusted returns and the trader has sufficient capital: a multi system, multi market, multi timeframe approach is the best Forex trading system to implement.