If you’ve been trading the forex market, you’ve either been creating a forex trading strategy system or in search for one… or else you wouldn’t be reading this.
I think we’ve all been there, maybe we are still at that stage; create a system, test the system, use the system, tweak the system, etc… We’ve come across several systems, used them and found out that they don’t work.
How about that trading system you personally created? It was going good, then suddenly the market behaved differently and you lost all your profits. So, back we go to the scarp book to create a new and better system. We need a system for any market condition… everyone’s in search for that holy grail system.
Is there a holy grail of forex trading? If someone did find that holy grail, I don’t think they would share it with anyone. If a system is capable of earning you your $1million, wouldn’t it be logical to sell it for more than $39, $59, $97? If I was to sell such a system, I would sell it for a minimum of $30k or not sell it at all.
But… maybe there are just those good people who will sell it for a cheaper price
I think you should ask yourself that question: If you had such a high return system (potential of making $1million), would you sell it for $97?
Just be careful of the many sharks out there
…And in advance, I’m not here to sell you one or recommend you one.
Forex Trading Strategy System
Here is what I want to share with you when you create your own trading system. I just want you to be aware of a simple concept that hopefully could make your trading more successful.
Having 4 or more indicators doesn’t increase your winning edge in trading. If you ever tried to create a trading system, you might have complicated the process. You might have 4-7 technical indicators within your system, and that’s over complicating things.
If you’ve taken enough time to study them, you would realize that ALL indicators reflect or mirror each other.
Example: Using these given constant and technical indicators would produce the same entry signals. MA (26) , MACD (12,26,9), CCI (26), RSI (26), ICHK (9,26,52), etc…
This may sound weird, but 1 indicator can make you more than you can imagine. 3 technical indicators are ok, but anything more than that is irrelevant. Seems bizarre and illogical? No, not really. You can find the same amount of false signals with 1-3 indicator compared with 4-10 indicators.
How to make more money with fewer indicators
In the early days of trading they only used one system or one indicator. And the truth is that they made money from that single indicator alone. Time and time again as new inventors of a new indicator proved that money can be made from their invented indicator.
John Bollinger (Bollinger bands), Gerald Appel (MACD), Donald Lambert (CCI), Charles Dow (Dow theory), William D. Gann (Gann Angles), Ralph Nelson Elliot (Elliot Waves) to name a few of the greats. These guys became well known for their indicator because that is what they used to make their millions in trading.
Take for example the Japanese candlestick. The Japanese created the candlestick to trade rice. They exploited statistical data in its simplest form, and they were very successful with it. The candlestick was invented in the 17th century. And the MACD, Bollinger bands and Gann angles wasn’t even invented yet.
You can make a lot of money from simple moving averages (SMA) alone. As knowledge passed down from teacher to student, it gets diluted. And with years of diluted information, most of today’s traders don’t even know how to use a MA properly. Rather, they love to debate that EMA or WMA are better than SMA.
The Problem and the Flaw
Even though we are not in the 17th century, the fundamentals of these technical indicators still holds true. You may argue that today’s market is very noisy and turbulent, but it is irrelevant due to that these indicators will always calculate the historical data. Thus, it will produce the same results from now and for centuries to come.
But from all the noises and turbulences of the market, a trend is always to be found. Thus, the simplest indicator will always show you the trend for you to take advantage of.
The biggest problem is emotion. The early traders made their millions over time. Today, most traders’ expectations are to make their millions in a very short amount of time. They lose control of their emotions, which lead to losing money.
The respected and great traders made their money in a slow and gradual process. The old generation way of thinking was: hard work and the rewards will come in due time. In today’s way of thinking: little or no work, want the rewards now and not in 5 years.
The great traders also admitted that the indicators are not 100% perfect. It means that the indicator will produce a false signal. This is true in both fundamental analysis and technical analysis.
So the main question is: How can you avoid these false signals?
This is the question you should be asking yourself. When you have answered this question, you are on your way to a successful trading system
Conclusions
Even the simplest system/indicator is not 100% perfect and has flaws. Limiting and avoiding those flaws will make you become a successful trader. Can you imagine using a simple indicator with certain flaws? Now add more indicators with other flaws… Aren’t you just complicating it and making it worse? Adding more indicators is like adding more problems and flaws into your forex trading strategy system.
Why re-invent the wheel and why complicate things? You can be successful when you grasp the fundamentals. That is the key, exploiting statistical data in its simplest form. You can be very successful in trading the forex using only one or two indicators.
Wishing you all the best with your Forex trading,
Breian Malupa
PS. Stay tuned for my next post
“How to avoid the flaws & false signals of a technical indicator”