Friday, June 20, 2008

Golden Rules for Forex

am going to be very candid with you right now, and I risk alienating myself from most of the other Forex educators out there. However, I had to make a decision: tell you the truth, or keep my mouth shut to make good with the "old boys" network of Forex "gurus".
Deep breath... here it goes...
I've had my eyes on the Forex markets for years, but specifically, I spent the last year carefully researching, testing, and tweaking every course, system, and method I could get my hands on to see what was going on. So, I think I've seen it all, and for the most part - it's ugly.
I have 4 "golden rules" that I use to determine if a trading method is good for me:
1. It must be a complete method, with setup conditions, entry rules, initial stop rules, and exit strategy rules, leaving no decision to chance.
2. It must include specific risk management, money management, and portfolio management guidelines.
3. It must be based on technical analysis, but it must not be a 100% mechanical system.
4. It must take less than 20 minutes a day to apply after learning how to trade with it.
Let me talk about item #3 above for a moment, because this is where a lot of traders can potentially lose a lot of money.
When you rely on a computer to make 100% of your trading decisions, you do not learn how to become a trader, and you never will. Instead, you learn to follow directions. This can be extremely dangerous to your portfolio, because almost every system I've seen since 1974 has been back-tested and curve-fit, which means it will ultimately fail, or at least not live up to its past hypothetical results.
Now, that statement might get me into trouble, especially with younger traders, who tend to believe that you can create a 100% mechanical system that never (or rarely) loses. Folks, that's called the Holy Grail, and a week doesn't go by that I don't get an email from someone who thinks they have found it.
By the way, this becomes even more dangerous when you base your livelihood on a third party service that feeds you signals every day without telling you their "secret formula". What would happen to you if they went out of business?
(Just for the record, I believe some mechanical systems ARE good, at least for awhile, but I also believe the only way to maximize their use is if you truly understand how to trade in the first place.)

1 comment:

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