Handmade: Design Your Forex Trading System

2026.04.24 2019.12.05 Handmade: Design Your Forex Trading System

Artem Shashkovhttps://www.litefinance.org/blog/authors/artem-shashkov/

The article is about a simple but not easy way of becoming a successful trader, making real profits in forex. It is also about how traders are trying to escape from it so persistently.

Hello, everybody!

Today, I’d like to deal with a very interesting topic about the way of becoming a trader, and about searching for one’s identity and one’s own forex trading strategy.

Sooner or later, when you have studied all the accessible information on trading you a kind of “grow out of this”. I am talking about various theories of price movement and price action strategies, and about best forex strategy for beginners, and about different forex strategy secrets. At a certain point, you realize that the secret tool, you have been looking for, does not actually exist. Because you have really studied and tried everything in practice, but the powerful trading toolbox and all those forex trading secrets trading strategies for the forex market “don’t work”.

When this moment comes, you, as a trader, realize that you actually don’t need all you have studied about simple forex strategy for beginners from books and the Internet reading experienced traders gain expert. You basically should have been gaining practical trading experience rather than just be blindly searching for that magic grail (an always-winning-trading-system).

At the same time, you, being a trader, realize that all the studied information on trading turned out to be a kind of something alien, and that is why you have never fully trusted it deep in your heart. You couldn’t trade with one strategy for a long time, you didn’t completely believe in the forecasts of various gurus and trading experts, or you didn’t even believe the forex traders who claimed that they could make profits in forex and make money on trading. You failed to plan managing risk mastering. All of that was so because it was nothing more than the viewpoints of OTHER PEOPLE, based on THEIR personal experience.

Suppose, a trader has been really tired, exhausted and has actually given up, he/she just quitted creating a successful trading strategy or searching for a magic grail, having realized that it doesn’t exist in fact. What is the solution then?

The solution is very simple, you just need to spend the “spared” time on researches and practice. When you have enough practice, you’ll be able to develop your own successful trading plan managing. You’ll be able to gradually maximize your profits and minimize your exposure to risk.

You know, the matter is like this: trading is somehow seen as something different from, for example, business or another occupation. And, if in business or some other job, it is clear right away that to achieve high results you need to just gain practical experience and develop the needed skills, then it is not that obvious in case with trading. Most traders, doesn’t matter whether this is a day trader or a long-term investor, really hope for quick start success. They study the economic data to trade the news or look for some secrets to forex diversification. They go through an enormous pile of information on forex day trading strategies, forex technical trading strategies, forex fundamental strategy trying to find a forex winning strategy right away. They focus on forex successful strategies or making big money quickly rather then on developing their trading gskills. You just can’t change it, and that's’ it.

Why is it so?

Next, you brain thinks like this: if my earning doesn’t depend on me, it rather depends on something else, then I am to win over that “something else”. Differently put, you try to get this “something else’ to work to your advantage. So, you look for a simple profitable forex strategy to make it act just as you need.

Here we go!

1. A typical story of a trader or how to trade successfully

So, what do most traders start to do? Having completed a few losing trades they start thinking that everything can be done in a smarter way; they don’t have to gain practical experience, they just need to find out how to predict the price movements, the right time to enter a trade and exit it. As, this way, you won’t have to determine your market ideology, trading plan managing risk, you won’t have to practice and develop anything at all. :)

And there it begins. Traders try to find out all the possible reasons for particular price moves (‘well, there the central bank hiked the interest rates, so the price went up, now I know that is its always like this”); they look for explanations for the price movements (“well, there big traders triggered the stops of small ones, so the price made a false breakout of the level”); they search for the forex trading strategies that WORK FOR OTHERS (“well, guys, where will the EUR/USD price go? Did you buy or sell?”), you see, don’t you? Beginner traders try to find something that will allow always control the price chart and its further moves.

So, instead of studying the subject thoroughly, test a safe forex trading strategy and gain practical experience step by step (just like with medicine or business), we all are looking for some magic trading won tools and strategies that will allow us to control the market. To win over the market. At the same time, the concept of ‘a businessman who can predict the demand for a particular product’ seems to be nonsense to everybody; but “a trader who can predict the price movements in forex” somehow seems to be something real. =)

To cut it short, my article is a kind of try to correct and direct the efforts of those who have been already tired of searching.

It will be also useful if you read it at an earlier stage. You may feel discontent for you will think the recommendations to be “too simple” to apply to such a “magic” thing as trading. But if your will is strong enough to start practicing BEFORE you realize the futility of looking for the trading grail, I will be really happy for you.

In fact, now, I am writing this and smiling at myself. I used to think myself to be too smart and intelligent to just mechanically practice and gain the experience, just like a pinhead. :)

Moreover, the article doesn’t describe a magic algorithm, following which you will right away create a winning forex trading strategy and become a successful trader. However, the article outlines some efficient types of forex strategies, including both beginner forex trading strategies and the trading systems for expert traders. It deals with a few important issues, and if you realize and understand them, it will be easier for you to understand how to develop an own winning trading strategy and design your own profitable forex trading strategy.

2. Start Forex Trading: Important Questions

Well, I’ll outline a few principal moments for a start:

1. In financial markets, there is no such a secret tool that will turn you into a successful trader right away. Similarly, there is no such a secret tool that will immediately turn you into a professional in business, sport, medicine and so on. You will have to go through YOUR own way of trials and errors.
2. The feeling “I am too stupid, I will fail” is natural for any newbie. It is because the confidence in success can’t result from little experience. But your brain goes on and “extends into the future” the current situation. This way, it pretends that it “knows everything that should happen to the price in future” However, remember all times when your mind was trying to predict the future, based on the past or the present moment. Do you remember this feeling of confidence that the price “will definitely go up/down this time”? How many times have you, being completely sure, FAILED to guess? If so, does your mind really know the future? Or may it only create an illusion? :)
3. A trading system results from a trader’s OWN identity: his/her habits, disposition, state of mind, skills and knowledge, personal experience and so on. Of course, at first, your own trading strategy may be of no good, yielding more losses than profits. All your relatives and friends may not even believe in you, laughing at your attempts (joke). The point is that in the PROCESS of testing of an easy forex strategy, making tries and errors, you’ll be simultaneously developing multiple things: your skills, understanding of the market, self discipline in observing your own rules, and these rules as well, which will become more efficient by each error.
4. You should be focused on mastering your skills rather than on making big money right away. If you are focused on the money, at the time of winning trades, you’ll be afraid of potential losses, during a losing streak, you’ll hate the market that is taking out ‘your money’. If you are focused on mastering your skills, you will have the same feelings for both losing and winning trades – you won’t be either too excited about profitable trades or too depressed about losing ones. The trading performance just becomes something like statistical data, reflecting the efficiency of your forex trading strategy. Bear in mind that most traders are originally focused on making profits, so you’ll be gradually shifting your focus from the money to the trading skills.

I’ll also note that it takes quite a long time to become a trader (the picture below shows it).

This is because you will have to develop everything and train yourself in everything. This is work on the trading system and work on your self-discipline (managing your automatic reactions to external factors, for example, to a series of losing trades), and work on your daily routine (so as not to be depressed from excessive neural load or from lack of sleep if you work / run a business and learn learn forex trading strategies at the same time), and work on your diet, - to cut it short, comprehensive work, related to all spheres of your life.

However, all of the above won’t come right away. Actually, at first it seems that trading is some kind of simple stuff, and it is strange why so many people cannot succeed. After all, you just need to buy cheaper and sell more expensive, you take the moving average, and you enter a trade in the trend. But in fact, you have to really transform your life and yourself. Is your will strong enough?

3. Basically, how can you design your own forex trading system?

There is a creepy superstition that "the market is constantly changing", so "trading strategies die sooner or later." Well, you know, don’t you? Are you afraid already? Let's see what's changing there.

There are changing only two things:

1. Volatility The price on average eas covering about 20 units per minute / hour / day, and began to cover 10. Or 30. That is, movements can become either longer or shorter.
2. Liquidity. Yesterday, 1 million people traded EUR/USD, but, ahead the holidays, people went on vacation, and only 100 thousand people remained to trade. The problem of low liquidity is that the there may not be a counterparty for your order at a good price. So, you will either have to wait, or to enter a trade at a worse price (for example, buy more expensive). But there is not such a problem in forex.. If you trade a popular currency pair, there are always lots of people and large trade volume.

That’s it. Nothing else ever changes in the financial markets.

Next, you need to dismiss the things that are obviously useless and pointless. In my opinion, this includes

• Stop losses/take profits of particular number of price units. For example, a stop loss is 25 pips and a take profit – 50. This trading strategy will fail to adjust to changing volatility

• Trading methods that involve subjective interpretation. I mean when the same idea is marked in the chart differently by different people. For example, dividing the price movements into waves.

Why? It is because you can’t actually test it. Even the same trader will mark all this in different ways, forgetting how it was outlined last time. In addition, when making a trading decision, the trader won’t feel confident that “everything has been correctly identified”.

• Trading tools/trading strategies that are said to be working for one currency pair and useless for another. If it is really so, then they won’t work for another currency pair just because they can’t be adopted to a different liquidity/volatility.

So, what is left is a simple forex trading system that can be adopted to changing volatility and liquidity, and its work principal must be simple and clear.

Therefore, the most efficient strategy should be the one based on some pattern, i.e. a price chart formation that can be of different sizes, but it will always have the same meaning.

There can be also grouped strategies, based on horizontal price levels, or support and resistance levels. The levels have always been and they will always be. With any liquidity/ volatility, there can be only three variations of price action: rebound, breakout, false breakout.

In these cases, there is a clear entry point, a clear point to put a stop loss and a take profit. If the volatility increases, the parameters of stop loss/take profit will change, but the strategy BASIC PRINCIPAL will be the same.

So, let us study step by step how to build and trade a trend-following strategy:

1. You take a simple idea (it must be simple). For example, a 1-2-3 pattern. That is, you take something that can be CLEARLY seen in the chart and interpreted only in a SINGLE way. So that, you can clearly describe the idea to your relatives/friends/dog, and they, knowing nothing in trading, could easily identify this price chart pattern (yes, and the dog gas well, it is one of the key characters).

2. Choose a tool that will identify the trend in a longer timeframe. A longer timeframe, in my opinion, should be x2. That is, for M5, it will be H1, for M15, it will be H4, for H1, it will be D1. If you take a shorter interval between the longer and the shorter timeframes, the longer one won’t represent the needed globality ofl trend. To identify a trend, any indicator will do, even the one with an exact parameter. For example, a moving average with the period 20. Why is possible to apply an exact parameter there? Because you are not aiming at adapting to the volatility, this will be done by the pattern itself. The aim is to filter the trades, so that you won’t enter the trades with a little chance for success.

3. The idea from paragraph 1 is tested on 100 trades in special testing software (to save the time) with standard parameters. You enter only in the trend direction. You are likely to be at a loss as the total result.

4. You rewind everything and change the approach to entering trades. Again, test it on 100 trades. Analyze the performance. You are still likely to get a loss.

5. Compare paragraphs 3 and 4 to find out where the performance is better. As there is likely to be a loss in both strategies, you choose the one where the loss is less. Thereby, you dismiss an obviously loss-making trading style.

6. If you strategy is a day trading one, then, from 100 trades in a “better” system, you remove those that were entered at night (for nobody trades at night). Analyze the performance. Has it become better or worse?

7. You take the next pattern and get it through paragraphs 1-6

8. Then, you test the next one.

9. Next, you take another pattern, and so on.

10. As a result, some time later, you will have statistics on several patterns. Probably, there will still be losses, yielded by all of them. BUT! Having done this, you’ll FEEL what exactly is more convenient / comfortable for you to trade, just based on inner feelings. Then choose this particular pattern and work exclusively with it.

Why is this of key importance? It is because when a person serfs the Internet and looks for a profitable trading system, he/she does not know what exactly will suit him/her. I don’t have to go far for an example, how can you know what kind of activity you like BEFORE you try a few of them??

And, yes, I know that this algorithm might seem to be a sort of nonsense, where you have to make a lot of pointless efforts. And I know that, reading a phrase like “profitable forex trading system”, a trader usually thinks of something complicated. And the more complicated it is, the more profitable it looks. However, everything is not exactly like this. The more variables and parameters a system includes, the more likely you are to be confused.

A wrong turn:

Now, let’s speak about “false paths” a little. When a trader has been failing to create a profitable forex trading system during some time, his/her mind starts looking for a “shortcut”. So, they usually search the Internet to find something that will help them make less mistakes.

Something like:

• Trend/Flat indicators that are said to determine the time when a flat starts/ends and when a trend starts/ends
• Information about strong/weak price levels. As, if the level is strong, the price is more likely to rebound.
• Information about “big guys”, “smart money” and other theories about what is “really” going on in forex.

I will not go deep into details, but all of this engages two things:

1. Pain caused by a large number of losing trades (followed by beating yourself up like “everybody succeeds but for me”)
2. Desire to find out in advance where the price will go, if it will rebound/break out, or if it will be trading flat or trending, and so on. This is the result of the first paragraph.

So, what I want to say about this is that it is necessary, sooner or later, to admit that you (and actually, no one) has the power to predict and / or explain the market moves.

And it means that, at any point, you just need to be prepared for two scenarios: the price will either go in the direction you need, or in the opposite one. Don’t try to somehow explain why it goes there and not here, as this will be just a point of view, and nobody can know how it is in fact.

And, yes, I understand that your mind will think like this, “Yes, it was clear there that it will be trending” and so on. Try where possible not to get distracted by this. Or test its predicting abilities on a demo-account, trading only based on its “hunches”. This way, you’ll see how well your mind can predict the price moves without risking your real money.

In conclusion, I’d like add that what really matters is the number of your system trades. Even trading with a losing system, a trader can’t but gain experience, and in any case, he/she will get ideas about further testing. And the ideas tested are the experience. But it is important that the trades should be only the system ones, entered and exited according to clear rules; not just “I’ll put a buy for an unknown reason, a stop will be put later”. When you have a trading plan and trade in a system-based way, you develop discipline (it is also very slowly, but there is no other way). When you trade randomly, without any system, you’ll progress in nothing. You won’t even know if your strategy is profitable or not, and of course you will never be confident in yourself trading this way.

Remember that everybody is scared at first. Nobody is confident in success, until the success is achieved.

P.S. Did you like my article? Share it in social networks: it will be the best "thank you" :)

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Price chart of EURUSD in real time mode