LC’s Forex Trading Systems

I haven’t been updating this powerpoint since 2012, so I should update this powerpoint with the following changes:

  1. Removed a rule: Correlation of pairs in limiting the number of open position size
  2. I have stopped using MT4 since end-2014, so I replaced pictures with my current charting software: ProRealTime
  3. Since 2014, I have stopped trading USD/CHF, USD/JPY, and USD/CAD due to lack of confidence
  4. I have removed intra-day trading method
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Forex Roulette

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Does Your System Have Positive Expectancy?

Source: http://www.forexcrunch.com/does-your-system-have-positive-expectancy/

Currency trading carries a lot of uncertainty. Any system you choose will always have winning and losing trades.

A viable system has a significant positive expectancy. Here are some guidelines in finding it.

What is a positive expectancy? It means that over time, the amount won exceeds the amount lost in trades. This doesn’t necessary mean having a system that wins most of the trades.

If your risk reward ratio is a healthy 1:3 or more, it means that when you can afford to have more losing trades than winning ones, as the winning ones will compensate for more than one loss.

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The Pros And Cons Of Automated Trading Systems

Source: http://www.investopedia.com/articles/trading/11/automated-trading-systems.asp#axzz1WbOC7moR

Traders and investors can turn precise entry, exit and money management rules into automated trading systems that allow computers to execute and monitor the trades. One of the biggest attractions of strategy automation is that it can take some of the emotion out of trading since trades are automatically placed once certain criteria are met. This article will introduce readers to and explain some of the advantages and disadvantages, as well as the realities, of automated trading systems. (For related reading, see The Power Of Program Trades.)

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A Mathematical Approach to Eliminating Emotions

Additional resource that further elaborate importance of Positive Expectancy and Opportunities: A Mathematical Approach to Eliminating Emotions.

Most traders spend countless hours looking for that magical combination of indicators that will reveal the “holy grail” of trading strategies. Obviously, the goal is to find a winning strategy, but more oftentimes than not “winning” is misconstrued into trying to find a strategy that wins a high percentage of trades. After all, winning a trade means making money, and losing a trade means losing money, right? Don’t be so sure about that.

Like many of the seemingly obvious components that go into creating a great trading plan and becoming a great trader, what we think seems logical in reality is what is holding us back.

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Who the Bleep Cares About Trade Expectancy

Source: http://trading-u.com/blog/2011/06/who-the-bleep-cares-about-trade-expectancy/

Quelling two of the five most common fears in trading: event risk, and trade expectancy, will go a long way in quieting the other three: fear of failure, fear of being wrong, and fear of no control. This is because event risk and trade expectancy are directly related to trading, while the other three are personal foibles. Event risk is not so hard to deal with using sound money management and stops, but fear of trade expectancy… well that is what proves the end of the road for most speculators.

Trade Expectancy is your anticipated win/loss ratio plus your risk to reward ratio. Without having a good idea what those numbers are, you will not be able to stomach the risk of executing a trading system through even reasonable draw-downs. It is essential that you understand how your method or system will perform overtime in all trading environments. The biggest road blocks to a high expectancy rate, i.e. success, is that markets have 2 different tendencies, which categories the speed and distance with which they move through time: the first is trending, and the 2nd counter-trending. It can be difficult to make money consistently with one method in both environments, particularly if you are on a higher time frame chart; difficult in a demo account, dangerous in a live account. Experienced traders understand that markets spent more time moving in counter-trending patterns than trending. This is because of #1: professional market makers – whose job it is to supply a constant bid, and a constant offer in a market, i.e.: buy and sell all day long as many times as they can which creates a sideways pattern– and #2: low event risk, a.k.a. lack of new news (significant incoming information) to move the markets from one level to another.

Using Trailing Stops

Here, I would like to share some good materials about trailing stops.

http://forexbeginners.net/files/beginners/journal/Using_Trailing_Stops.pdf

https://lcchong.files.wordpress.com/2011/05/precise-exits-entries-manual.pdf