2Bull Forex Blog

If you look online you will find lots of them all claiming you will make money but the fact is 99% of the systems sold don’t make money and if you are thinking of buying one, then you need to read this article. Why don’t they work? It’s simple:

They have never been traded and normally carry this or similar - read and digest it:

“CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown“.

Check the forex trading systems sold by vendors and you will see this and what use is it?

It’s no use at all.

We can all make track records up if we know the closing prices but that’s not the real world of forex trading.

I am amazed that people trust a trading system that has not been traded, when they would laugh at a person who tired to teach them to drive who hadn’t past their driving test! It’s the same concept - but people in forex markets tend to let greed blind them and then they let themselves fall for the advertising hype:

- Make a six figure regular income
- I made $7,000 last week
- 80% profits guaranteed
- No Losing months

Yeah right - I have been trading for 5 years and forex trading is hard and you would expect it to be with the rewards on offer. You can win but you won’t win buying a useless, back tested, curve fitted bit of software from a vendor who, has never walked the walk.

If You Want to Win - Do Your Homework!

You get nothing in life without effort and your forex trading strategy is the same, you need to work at it and put in some effort.

If the above mechanical trading systems made money, no one would bother to work; we would all spend a few hundred bucks and be rich.

Forex trading offers you a life changing income, the rewards you can make can be life changing - but it’s a challenge and you must put in some effort to get a reward.

So go and get yourself some proper forex education, learn forex trading the right way and you can enjoy success it really is that simple.

Technical indicators are data points that try to predict how the market will move in the future. While they are not always 100% accurate, technical indicators have proven to be rather reliable signals. In this article, we will briefly discuss the RSI and Stochastic indicators.

Relative Strength Index (RSI)

Without going into too much technical detail, the Relative Strength Index (RSI) compares the recent upward and downward price movements in the market. This comparison is expressed as a ratio and the result is normalized between a range from 0 to 100.

When we see that the RSI ‘line’ crosses above 70 points, the currency pair is considered to be ‘over-bought’. This means that the buying pressure has been ‘too strong’ and that prices are likely to come down again soon.

Conversely, when the RSI ‘line’ crosses below 30 points, the currency pair is considered to be ‘over-sold’. This means that the selling pressure has been ‘too strong’ and that prices are likely to go up again soon.

For best results, the RSI indicator should be used as a trade exit signal, NOT a trade entry signal.

Stochastic Oscillator

Similar to the RSI, the Stochastic Oscillator is mostly used to indicate ‘over-bought’ and ‘over-sold’ market situations. Also, it is scaled from 0 to 100, just like the RSI.

This indicator measures the ratio of closing prices with the recent market volatility.

These buying and selling conditions for this indicator are expressed by two lines: %K and %D. The divergence between these lines and the market price action can be a reliable trading signal.

To be realistic, most people will have a win loss ratio no better than 50%. The reason so many people lose money in Forex trading is that with a 50% win rate, they lose much more money than when they win.

It is possible to make money in Forex trading by picking winning trades with no better statistical advantage than flipping a coin.

How can someone make money when you only get half the trades right? That means 5 out of every 10 trades are losers. Well, if your money management is set up with the right profit loss ratio, it is possible.

Let’s use 30 pips as a profit target on every trade and 20 pips as a stop loss on every trade. We will use 10 trades to make it easier using percentages. Winning 5 trades at 30 pips per trade, nets 150 pips profit. Losing 5 trades at 20 pips per trade is 100 pips loss. The net profit for ten trades is 50 pips gain. With one contract, this is $500.00 or one mini-contract, this is $50.00 per ten trades.

Let’s say you get better at your trading and win 60% trades. Winning 6 trades at 30 pips per trade, nets 180 pips profit. Losing 4 trades at 20 pips per trade is 80 pips loss. The net profit for ten trades is 100 pips. With one contract, this is $1,000.00 or one mini-contract, this is $100.00 profit per ten trades.

A more rare win percentage is 70%. But working out the math, 7 winning trades at 30 pips, nets 210 pips profit. Losing 3 trades at 20 pips per trade is 60 pips loss. The net profit for ten trades is 150 pips. With one contract, this is $1,500.00 or one mini-contract, this is $150.00 profit per ten trades.

This shows that even with only 50 % wins, money can be made. Using a 3:2 profit loss ratio is profitable for making money in Forex trading. This could mean using a 60 point target with a 40 point stop loss as well.

Using a smaller ratio like a 30 point target and 30 point stop loss, a 1:1 ratio will only give a profit with a win rate greater than 50%. You may find that your trading strategy can only get a 20 point target so you may need to do the 1:1 ratio. Using the 3:2 ratio, with a 20 point target, you will have less than 20 as a stop loss and this is too small of a stop loss for Forex trading. There are so many market forces that can swing more than 20 pips and hit your stop loss. Practically speaking, you need to work with the currency pairs with the smallest spreads when using a 20 point stop.

Now, knowing the right target loss ratio, the right trading strategy needs to be incorporated to make this work. Finding the right strategy is vital to this ratio.