Do I NEED a system?

Hi,
My question is very basic: Do I need a system?
Does everybody trade with some kind of system like if x crosses y while z is above m etc.?

My basis for asking this question:
Before I placed my first trade I read and researched for a couple of months and took a seminar (a bank near me held a free one which was quite good).
I opened a demo-account and started placing trades. I concentrated on EUR/USD, GBP/USD and USD/YEN (which got dumped after a lot of losses in this pair). I traded without any indicators as I have read a lot on these forums about trading with indicators vs. without them.

Before any trade I determine the longterm trend, the weekly trend and the current trend. I plot in resistance and support-levels (short and longterm) and if I like the way the candles are going I place a trade with stop-loss and limit order, or just the stop-order and then monitor the trade for when to take profit.
Sometimes when I feel there is a lot of volatility I plot in the Fib. retracement lines provided by my broker and ride it the other way or if the pair is ranging for a bit I will follow the candles and trade both ways between the resisitance and support lines.

All in all I have placed 22 trades (12 wins/10 losses) in 12 days.. some of them intraday others lasting around 12-20 hours. The account hasn't been below the initial "investment".

I kind of like trading like this "without" any indicators and I know this is a very small sample to ask this kind of question but: Is this a viable way to trade or have I just had a lot of beginners luck?

I have traded a $50.000 demo account and its up to $53.710 by now. Each trade has been 1 std. lot. with 20-40 pip stops and between 1:2 and 1:3 RR-ratio.

My future strategy (starting new demo-account when I have all the details in place) will be heavily based on the MM of http://forexfactory.com/showthread.php?t=39514 which is one of the best post I have read in a forex-forum.

Thank you for any input and have a nice weekend.
Jesper

IF you can trade the SAME way with a real account, it seems you'll do just fine. However, that's far from a given as with real money things could be very different, for example you'll be tempted to close your winners early or use trailing stops and extend your stop losses further hoping it'll turn around. If and when you have that under control on a real account you should do quite well - 12 wins out of 22 with an r:r of 1:2-3 is a very good result overall, allthough still insufficient of course to be sure aspecialy considering that we've had pretty strong trends on all pairs for the past couple of weeks which makes trading somewhat easier.

As for the system part, it doesn't have to come instead of the above. If you also find a system that works well for you at least when it agrees with all your other ta, you can use it too, why not.

Good luck.

You answered your own question without knowing it. Without a system you don't know if your trades were beginners luck or if they were the result of an edge that you have. Systems give you the confidence to do the same thing over and over again and with time, to take profits from the market. They help you make decisions and, since we are in the computer age, they can even alert you to conditions in which your system might do well.

I know everyone thinks it's cool to not have any indicators on their charts but you pay a price for being able to brag that you have pure price. First, you have to constantly watch the chart and you have to make a decision every time price moves. Indicators can smooth out market chop and noise and alert you to conditions or, in some cases, execute trades on your behalf.

In my opinion, you absolutely need a system to trade well.

What PhilMcGrew said makes perfect sense. Personally I have a method I use and adapt it into a system which includes MM/Risk etc. My method of trading is solely discretionary however I have an extremely high hit rate and trades are based off of simple patterns and price action on very small timeframes. My style of trading does NOT equate to when x crosses y etc, you have to learn how 1 currency pair moves which requires a lot of screentime, it would be extremely difficult to automate the way I trade because there are no set rules of x crosses y etc. So in a sense you need specific aspects that make up a system but your trades do not necessarily have to be when x crosses y, markets change as a trader you need to adapt and change with them.

Skovjuul,

It would seem that both Phil and Richard are profitable, by using mechanical and discretionary techniques, respectively.

I would say that mechanical systems have the advantage that they can be objectively tested, and – as Phil points out – give you the confidence that you have some kind of statistical edge. As a newcomer, having confidence in something that’s already proven is important, until you develop the experience necessary to make your own judgement-based decisions. Trading might seem easy, but most people (understandably, I guess) seem to find it more difficult to keep to a plan when there’s real money involved. Losses and drawdowns can very easily cause doubt.

If you opt for a discretionary system, then at the very least there needs to be a plan, a clear rationale that you can apply consistently. Otherwise there is a very real danger that you’re only guessing, and of course luck can not be sustained indefinitely.

There’s a great post by a professional trader here. In his view, one needs to start with a proven edge, and then build on that, as one’s knowledge of price behavior grows.

David

Thanks for all the input.

I have followed a lot of the system-threads in here and most of them seem fine to start with and then a couple of pages of posts further they are declared unfit for stabil profits or they contain 8 different indicators that have to be aligned correctly (too complicated for my taste).

Comments like "Indicators only show history not future" is also a reason why I am unsure of a set system.

Also technical systems seem to be for EITHER trending markets OR ranging markets, meaning I will have to change between systems often (possibly too late resulting in invalid signals).

The way I trade now is looking at price-action and the imidiate trend/range, be it daily/H4/h1 or when I have the time H1/M30/M5.

I know there is no holy grail or anything but what is currently a good technical system I could try and follow? Perhaps I have missed the one really great system in the systems-section?

Thank you and have a profitable week.
Jesper

Whether we notice or not, everything surrounding us is actually have some system that they follow. Even with nature, we see bush growing wildly, but there is system that it actually follows. Tree grows, Rain coming, changing of day and night all are follow system. Think about it.

Forex too will always follow system. But question is which system is profitable and suit you??

For me I 've done many systems manually(many time follow trade system from the trade system section). Nothing seems give consistent results.
I use demo account for very short time to get the idea correct and immediate try with microlot on real account. One thing I found, manual trade is not fit me as most of time I will need to be in front of screen. and very often the human factors(Greed and Fear) occurs. but due to many loss experience from the manually system, it kind of develop a sense of no fear of lossing anymore. That's what i feel.

So, due to my background that I can do some programming, I become more interested to test EA compare to trade manually. It's great feeling that after test many ideas or system and found something usefull in it. Due to this, i've read a lot regarding people ideas, concept and many more to learn.

Using EA I can eliminate the human factors. Stictly follow system whether it is profit or loss.

I am experimenting many ideas, till now, i still experimenting with one great idea but I am not sure yet the MM parts.

With microlot 5000(USD50) within 2 days it become 18300(USD183).
Now I split the account to 3 make it each ~USD50.
Is it pure luck, I dont think so because the EA follow some define system.But how long this system can last, let see how can it last. Somehow, it is free money now.

The absence of a system means you're just guessing.

I.e. gambling.

Skovjuul,
trading demo accounts and real ones is totally different.

Just for example: on a demo account if you get 2-3 consecutive losses chances are you get tired, you say to yourself "ok, today I'm out of sync with markets", you close the computer, go out for a walk, and return to trading 1, 2 or 3 days later.
On a real account when you get 2-3 consecutive losses chances are you get angry, you increase your exposure, the number of trades, you modify the ruels of your system, if you have one, or your way to look at the markets gets corrupted by the anger and produces a lot more losses as you get more and more angry.

Having a system greatly improves your chances to reduce the anger, the stress and the inevitable consequential mistakes.

Anyway, as I see it, and as I experienced on myself in my early years of trading, having a system is not enough to be profitable in trading. It is necessary, but unfortunately it is not enough.
What one needs is a system with a proven edge, extensively tested to be profitable on a lot of previous years of market data.

You need this kind of system not because past performances are indicative of future ones, but because this is the only way you can get confident about your system, and later be able, during real trading, to determine if what is happening now in real time is consistent with what you saw during the backtests (that tells you the system is still valid and you must go on running it without any fear, even during bad periods), or if the system is behaving too differently from the past (that tells you the system may be not valid anymore and maybe it's time to find a new one before you lose too much).

Trading without such a system gives you very little chances to avoid losing a lot of your capital (if not all) when trading for real.

Yes, you do.


Who really knows?



This is the heart of the matter. You equate indicators with a system. It's a false assumption, but one easily made. It's a shame no one else picked up on this.

What you've been doing is a system even if you don't use indicators.

Here are the parts of a trading system. Most people don't have all of them. I'd be willing to bet those who are successful have at least 8 parts.

Parts of a System (from Developing A Winning Investing/Trading System That Fits You by Van Tharp and Chuck LeBeau)

1. Market Selection - Answers the question, "Is this a market I want to trade?"

2. Market Direction - What direction is the market moving, if any?

3. Setup - What conditions must be present before you enter/exit?

4. Market Timing or Entry - When should I open a position?

5. Protective Stop - How will you know when to get out to preserve capital?

6. Re-entry - How will I get back in if I'm stopped out of a good move?

7. Taking Profits - Under what conditions will I take my profits?

8. Money Management - Knowing that I'm when I'm wrong I will lose X dollars, how big a position am I willing to take?

9. Portfolio Selection - What kind of basket of commodities or stocks or other investments do I want to trade?

10. Multiple Systems - In order to smooth my performance, do I want to trade multiple systems?



Take it for what's it worth. Van Tharp is debatable, but LeBeau isn't.

Also, I think you should think about your original question. A bit of critical thinking is in order for you. Critical thinking is questioning ALL underlying assumptions, even the most mundane and minute.

Good luck.

You need a plan.

If you like trading without indicators then you should check out the james16 chart thread here as well as Martin Pring's book on price patterns.

Make sure you trade demo fro 3 consecutive months of profit before you go live. Tha's not just my opinion. Experienced traders, more experienced than me, will back that up. Billionaire traders have whole departments to rigorously demo their new ideas.

There are people succeeding with every kind of approach in the markets. Give yourself the best chance to be one of them.