.: The Vital Questions You Need That Must and Should Be Answered Before You Use Your Forex Curency Trading System If You are to Make Your Fortune
By:Bill Piker
Category:Home / Finance / Currency Trading
As 90-95% of new forex traders lose money within the first 3-6 months this article helps to guide new forex traders by asking questions that the forex trader needs to know prior to utilizing their forex system.
1). What data type are you using (or going to use)?
This sounds strange, especially if you have experience from another market such as stocks as their generally is only one type of data source available. However, in the forex market you can have up to 4 different data types: bid, ask, mid and indicative. Each has their own little nuances.
If you know you have indicative prices then you know you are in for some good results!
As an example: If you have a bid price history and you were looking to place a buy entry stop at 0830 EST according to the day's high, then you would know that the bid price will not accurately reflect what the actual price of our order should be. You would have noticed that if you placed a buy entry stop at the exact same price as that of the day's high you would have entered prematurely - you would have entered 4 or 5 pips before the high or the low of the day was touched (the exact same amount as the spread your broker offers!).
2). What spread is your broker offering on the currencies you are bask-testing?
You need to know this as this can help you set your slippage settings on each currency.
As the example in question it turns out that we found that our buy at the day's high method did not exactly work because we bought at the BID PRICE high, not the ASK PRICE high - the price that we need when we place our order TO BUY.
Therefore, you would enter in a slippage setting representing the spread that would be exhibited by this trade on this currency
But knowing at what price to buy is only half the problem... how do you know what quantity to buy?
3.) What margin does your broker offer?
If you know at what price to buy our currency at we need to inform our broker on what quantity to buy to fulfill the order. We only know what quantity to buy by the margin that the brokerage firm offers.
Most brokerage firms offer 100:1 leverage, however, some firms offer mini accounts with 200:1 leverage, others only 50:1 leverage.
Find out the margin required.
4). What restrictions does your broker impose and not just the margin and spread restrictions as described above. These are important in their own right, what you need to find out are the details.
This is probably the most important question of all as the fine line between success and failure can be found in the details. Now you can have this questioned by one of two ways: 1. You can find out through experience (generally the most expensive way unless done through the demo account!); or 2. You ask your broker (the cheapest and best way).
Why is this so important? I hear you ask. Well let's say you have a system that trades any gaps that might form on Sunday at 1700 EST, but your broker does not open until 1730 EST. You either need to factor this restriction in to your system, or move onto another system completely. Or, you may have a system that has 10 pip stops, but you find out that your broker will only let you place 15 pip stops from your initial entry price. Once again you will need to change your system to see whether it still performs well, or throw out your system (or change your broker)!
In fact one of the most devastating restrictions imposed by FXCM is that they do not accept stop entry orders if price never happens to trade at your entry stop price! FXCM will honor and "take the loss" of your OPEN stop positions, but if the liquidity is not there and price has shot straight through your stop price then you will miss out. This can have disastrous effects on your system results as you are left wondering on trades where you made good returns - "Would FXCM have got me in?". You may want to read of some of the quirks I use when placing entry stop orders on FXCM that could be of huge benefit to you to help you possibly get around this problem.
The restrictions by your broker are only half your systems' success; you also need to find out about another more important restriction... yourself. This leads to the final point.
5). What restrictions do you have? This is a vitally important question. Most people test their systems and fall in love with the results but find when they trade their system they have lost their account and that most of the best signals occurred while they were sound asleep.
As the forex market is a 24 hour market, you will need to put into place restrictions in your system that will be realistically conducted by you during the course of a normal trading day. There is no use operating a trailing stop method that changes your stop points during times when you are asleep and cannot possibly do so.
These are the vital questions that Youwill need to know and understand before you will make your fortune in the Forex Currency Trading Market with your system.
Article keywords: Forex, forex, invest, cash . wealth, investment, currency, fortune
Article Source: http://www.articles32.com
Bill Piker Ace Employment Services Employment Consultant Specific Expertise Financial Sector billys_office@yahoo.com www.aceemploymentservices.net www.forexforexforexforex.com
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