In the quest for Forex profits it should come as no real surprise that everyone is looking for the most profitable Forex strategies that they can make use of to trade the Foreign Exchange markets.
To make money from trading, particularly with automated systems, you will need the best tools. For the trader who uses automated software this means making sure you have access to the best strategies and Forex robots in order to help ensure your success.
So the question that we need to ask is what makes for a profitable Forex trading system? Can we actually assess the likely performance of a system prior to watching it trade on our live accounts? Are there any characteristics that are common to all systems that deliver success?
Below I take a brief look at some of the key factors that can often contribute to successful and profitable systems. These can be used when you first come across a new system and want to quickly evaluate its potential to make you profits.
1. Simple
Simple trading approaches often work better than complicated strategies when manually trading the markets. Therefore the same is likely to be true when making use of their automated cousins.
Although the computer is far more capable of dealing with complicated algorithms than the human trader, there is still a case that be made for simple systems. This is borne out by looking at the results achieved by many top performing Forex robots which will seek to replicate basic strategies such as trend following, overbought, oversold etc.
As a general rule, the more complicated the strategy the more worry you have that it will deliver, or at worse, execute correctly on your account.
2. Accurate Trade Entries
In order to make the best profit from a trading opportunity it is vital that the entry into the trade is optimum. There are no prizes for making the correct call on market direction but doing it either too early or too late.
The most profitable systems are able to identify the ideal time to enter the market and as importantly, will only do so if all conditions are met. This includes having the correct spread for the pair from the brokers which is particularly important for scalping strategies. Entering the trade at the correct time will make the most of the identified move.
3. Accurate Trade Exits
While entering the trade is one half of the equation, the other is to exit at the right time.
It is natural for human traders to make the wrong call at this time for many reasons rooted in psychology. Automated software doesn’t suffer from this limitation but it will still need to exit the trade at the best time in order to book the highest profit.
Strategies which have a lose exit strategy will frequently see potentially winning set ups turn into losses.
4. Money Management
If the strategy is central to any good Forex robot then the money management approach used is vital. A good plan here will keep you trading through the rough times and will also help to limit your individual trade losses and maximise your profit potential.
Winning systems will employ strict and well thought out money management rules that will help you to minimise the level of ‘draw down’ that you see on your account. A poorly constructed strategy here will see any profits that you make short lived and will result in what you thought to be a profitable trading system quickly failing you.
5. Risk vs Reward
Although this point has been left until last do not underestimate the importance of this requirement when assessing a strategy.
It is essential that the risk/ reward ratio used is in the systems favour from the outset . This doesn’t always mean that the system should win more trades than it losses or even that the ratio between profits and a loss should be a strict ratio. It simply means that the system should be able to win sufficiently so that any losses are regularly recovered.
For this you need a good profit to loss ratio on the strategy. This will help to ensure that not only can the strategy quickly recover, but also that it will be able to increase the value of your account deposit on a regular basis.
FX System Trader
