Trading Systems are rated based on (in order of priority) :
1. Money Management
Can the system allows you to specify the amount you risk per trade?
This is the most important factor in trading because it prevents you from having unexpected losses. In our search for a trading system, we will find systems that trade with a stop loss level. This will allow us to know how much percentage of our account equity is at risk in a single trade.
For beginning traders/investors, we strongly advised that you trade with a maximum 2% risk per trade and a max 10% risk per month.
If you manage your risk, the profits will come.
Beginning traders have a low ability to take losses and it will take a process to find out your personal risk tolerance.
If losses incurred are more than one can handle, it may lead to revenge trading and overtrading. These will devastate your account equity or make you lose your shirt!
What is the risk to reward ratio? What is the maximum draw-down over a specified period of time? How does using a specific risk per trade affects your max draw-down? What is the maximum consecutive losing trades in a row over a specified period of time? What is the winning percentage and average win versus average loss? How many winning trades and how long to recover 1 losing trade?
We need to expect and be prepared the maximum loss in percentage the system can make over a specified period of time. This can be deduced from generating back test.
Having this piece of information will allow us to know whether the system is still trading within it rules or the market has changed and rendered the system ineffective for current situation.
3. Ease of Use
Is the rules of the system provided clear and easily applicable? If it is an automated trading system, are the parameters easily understood and optimised for personalised results?
4. Honest Result
Do the forward test results resemble back test results closely? Does it perform according to what the salespage has stated?
This is quite subjective and we leave it to you to compare the forward and back test results.Key ratios and indicators will be highlighted to help your analysis.
5. Other Features
6. Weaknesses (If Any)
We need to understand the weaknesses of the trading strategy so that we can expect how it will perform during specified market conditions.
Is the support contactable? (If no comment are made about the support, assumed that support is working fine) Are there frequent software updates by the owners Is there a forum?
What is the ROI over a specified period of time? Is the trading system worth the purchase price?
Overall, how the trading system fare? (Rating will be reviewed from time to time as trading strategies may change.)
Feel free to use this article on your website or ezine as long as the following information about author/website is included.
Warren examines commercial trading systems and has since started researching and analysing systems to uncover good systems which bring in consistent profits. By publishing all the research papers and detailed analysis online, he seeks to educate potential investors and traders on the world of trading the forex market with automated systems.
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