2Bull Forex Blog

There are countless of Forex day trading systems available online for retail traders to follow. Unfortunately, most of them are either simply ineffective, or are downright scams.

Selecting a reliable online Forex trading system is not an easy task. In this article, I will briefly discuss two main issues you should consider when looking to purchase your own trading system.

Issue 1: What’s the biggest drawdown?

It’s not difficult to make tons of money in Forex trading. A blindfolded monkey can probably do that. What’s tough is making lots of money, AND managing to keep it.

Be careful of Forex “systems” with unrealistic propositions that claim to consistently make 300 or more pips a day. Pay attention to the biggest losses that the “system” suffers from. A system that makes you 300 pips a day could very well lose you 500 pips in the next!

All reliable trading systems will have relatively low drawdown figures. You can’t be a profitable trader if your losses are too large. Remember, even if a “trading system” enjoys a high-winning probability, it can still be an overall losing system if the losses are large enough.

Issue 2: Is the track record of the system simulated?

Even systems with the ‘best’ track records are essentially useless if the track records are simulated.

Simulated track records are easy to ‘manufacture’, since everyone already knows what has happened in the past. For example, if I know that the EUR/USD currency pair shot up 300 pips yesterday, it would be easy for me to come up with a ‘trading system’ that can make me 300 pips in only 1 day… I just have to test it using yesterday’s data!

The true acid test for a profitable system would be to test it using live market data. So try and look for a real track record for any trading system before purchasing one.

The currency market is particularly sensitive to market news, such as the non-farm payroll data announcement. Volatility during these periods of news announcements is notoriously high, and fortunes are literally made and lost in a short time span of a few minutes.

With these characteristics, it’s no wonder that many retail Forex traders pay extra attention to the latest daily news updates… their trading account depends on it!

Who Are News Traders?

News traders are people who trade exclusively on economic news announcements. Their aim is to make the most profit in the shortest time possible. It’s not unusual to have a market movement of a hundred pips of more, just 5 minutes after the news is announced.

News trading is a highly risky style of Forex trading, and is generally not recommended for novice traders. Amateurs who think news trading is a way to make easy money are often taught an expensive lesson by the market.

What If I Don’t Want To Trade The News?

For those who do not wish to trade the news, they often wonder if they should pay attention to the daily market news at all.

In my humble opinion, the answer is generally ‘no’.

The fundamental daily news is usually slowly incorporated into the market price, so a competent technical trader will already be able to take into account any unusual changes in price action.

However, there are of course exceptions to this rule of thumb.

While you probably don’t need to pay a lot of attention to the every-day news announcements, there are some economic news data release dates that you should avoid trading in.

These are the same economic news announcements that the news traders trade on. Some examples include the non-farm payroll, ISM manufacturing and FOMC meeting announcements.

The high price volatility experienced during these periods are best avoided by most traders… it’s better to keep your capital protected than to risk it on highly risky trades.