Top 10 List - Assessing Forex Systems
There are a number of things to think about when performing a forex system comparison. There are a lot of forex system vendors out there, this list will assist you to pick the one right for you.
1. History - Does the system vendor provide a history? A good system vendor should be able to tell you the systems monthly results for at least the past year. If the system has not been running for a year, ask what the back-test results were.
2. Draw-down - Drawdowns are unavoidable in trading forex. There are a lot of forex systems making a huge profit per year, but they neglect to tell you that you would have lost all/most of your account before making those 1000's of pips. Always ask what the largest historical draw-down has been for the system and use this information to determine how much you are going to trade to ensure your account is not wiped out. Consider the emotional impact of the draw-down, would you have given up?
3. Reviews - Search to see if others are trading the same forex system. Have a look what others are saying about the system. Find out if the system has its own forum and have a look at the feedback the system is getting. Often existing users have experimented with the system and found a better way to trade it, ask what the latest settings are before you get started.
4. Win Ratio - Professional traders usually have a win ratio of close to 50%. The profit is in how they manage the trade, by keeping losses short and letting profits run. A system with a high win ratio is not necessarily better and may be too good to be true.
5. Stop/Limit Orders - Find out that the system uses stop orders. A stop order is set to minimize your loss in case the trade turns against you. Without a stop order set your losses could be huge.
6. Paper Trade - Before trading any system with real money you should paper trade it, or trade it using a demo account. This will give you an opportunity to get used to the system until you feel comfortable with it, and give you an idea if you should trade it with real money. Many systems can also be back-tested to give you proof of how the system performed historically.
7. Timing - Find out what kind of time commitment the system requires and think about if this will fit in with your schedule. You should also ask what hours of the day you need to be at your computer to trade the system.
8. Money Management - What kind of money management system does the system use? Systems that recommend you increase your trade size after a loss are not generally recommended by the trading community.
9. Additional Costs - Find out what additional costs you will incur to run the system. Does the system require a specific charting package or data feed to run?
10. Refund - Find out if a refund is offered and what the conditions are.
Good luck with your forex system comparison.
About the Author
Jon is the owner of iBlogForex, a blog about every aspect of the Forex market including Forex System Comparison
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