How do you develop a system? | Forex Factory

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How do you develop a system?

  • #1
  • First Post: Oct 3, 2012 11:44am Oct 3, 2012 11:44am
There are hundreds of systems posted in this forum, and when I look through the threads I wonder how people develop and test them. When I backtest a system that is described here, I often find - with one remarkable exception so far - that it is unprofitable. Yet people seem to trade them apparently unconcerned if they win or lose in the long run.

When you read the description of a system here, how do you decide if you want to trade it or not? Do you go through price charts and manually simulate trades, adding the results in a pocket calculator? Or do you just trade away when you like the rules?
  • #2
  • Oct 3, 2012 11:59am Oct 3, 2012 11:59am
Quoting jcl365
There are hundreds of systems posted in this forum, and when I look through the threads I wonder how people develop and test them. When I backtest a system that is described here, I often find - with one remarkable exception so far - that it is unprofitable. Yet people seem to trade them apparently unconcerned if they win or lose in the long run.

When you read the description of a system here, how do you decide if you want to trade it or not? Do you go through price charts and manually simulate trades, adding the results in a pocket calculator?...
Most people in most threads are trading on demo accounts. So, it has not much to do with real trading.
Nobody ever posted a well tuned system in a public forum. Only way to advance is to pick up ideas from different threads and to put together your very own system.
If you manage to do this (it takes around couple of years of hard work on your own) then you have to remember that any good system will stop working very profitably soon after you have shared it publicly.
On the other hand, most ideas and systems work in the hands of a good trader who can read PA and is consistent. After the trader has done his own adjustments, of course. But this is also something that only the trader himself can do without listening to advices of anonymous people who most probably are just demo traders.
  • #3
  • Oct 3, 2012 12:32pm Oct 3, 2012 12:32pm
Quoting Indrek
most ideas and systems work in the hands of a good trader who can read PA and is consistent. After the trader has done his own adjustments, of course. But this is also something that only the trader himself can do without listening to advices of anonymous people who most probably are just demo traders.

That is absolutely correct. It took me years, to tweak test and get my system just right, but its nothing, if im not consist with PA reading, putting in discipline, and understanding whats going on in the market.

A system is just a "tool" if you buy a hammer, it won't spring to life and do the job for you, a system is to offer you assistance, not do all the work for you. My system pin point entry points, at which point.. I apply the due diligence, I do manual plotting, market conditions, time market movement.. etc.. Then I make a plan and see it through.

That's how a good system is suppose to "assist" you.
There are those who know, and there are those who don't know.
  • #4
  • Oct 3, 2012 1:11pm Oct 3, 2012 1:11pm
There is good Van Tharp book about system development , what I remember from that book:
-Know what you want, realistically
-Find Positive expectancy
-Find low risk high reward trade ideas
-Your entry strategy should make sure you always get into momentum,major trend..etc, in short to make sure you catch then price moves and know that your wrong fast enough (risk:reward)
-Exit strategies, most important, better if you have few, for all possible situations
-Position sizing, second most important thing or so.
  • #5
  • Oct 3, 2012 1:25pm Oct 3, 2012 1:25pm
Quoting jcl365
There are hundreds of systems posted in this forum, and when I look through the threads I wonder how people develop and test them. When I backtest a system that is described here, I often find - with one remarkable exception so far - that it is unprofitable. Yet people seem to trade them apparently unconcerned if they win or lose in the long run.

When you read the description of a system here, how do you decide if you want to trade it or not? Do you go through price charts and manually simulate trades, adding the results in a pocket calculator?...
Your system is YOU!
Everyone can enter a market but how you close a trade will make the difference.
watch these videos by Jason Alan Jankovsky and you'll get an understanding of the market and your psychology 1st before a system.People trading "systems" without understanding the market and self lose!
Read and watch http://www.fxstreet.com/search/contr...1-e9bf77216d2f Sam Seiden
Supply and Demand zones.
In trading, you have to be defensive and aggressive at the same time
  • #6
  • Oct 3, 2012 1:51pm Oct 3, 2012 1:51pm
Quoting jcl365
There are hundreds of systems posted in this forum, and when I look through the threads I wonder how people develop and test them. When I backtest a system that is described here, I often find - with one remarkable exception so far - that it is unprofitable. Yet people seem to trade them apparently unconcerned if they win or lose in the long run.

When you read the description of a system here, how do you decide if you want to trade it or not? Do you go through price charts and manually simulate trades, adding the results in a pocket calculator?...
Well, you can manually simulate the trades, but you do not look for profitability in this type of simulation (at least not at the begining), what you need to look for is for a "Margin Call"; if in your manual simulation you do not get a potential margin call, then you can at least say that you fulfilled the rule number 1 of any strategy: "Capital Preservation", you didn't blow your account.

After you get to "how not to loose money", then you start to learn how to make it. This is the rule number 3 (learn how to make money). Rule number 2 is "don't forget rule number 1".

Hope this helps.
  • #7
  • Oct 3, 2012 2:04pm Oct 3, 2012 2:04pm
Quoting Indrek
most ideas and systems work in the hands of a good trader who can read PA and is consistent.
Agree. Even a simple EMA 5 and 20 crossing can be profitable if you know IN WHAT SITUATION you use it.

By the way, I think a majority of beginners cannot even execute a simple EMA 5 and 20 crossing correctly and consistently. This unskilled/clumsy execution may be the biggest reason for people to say "most systems in FF don't work." On the contrary, I would say "most systems in FF do work" if you execute them exactly the way the author intended.

Read "Way of the Turtles" and learn how to execute systems.

Best
  • #8
  • Oct 3, 2012 2:13pm Oct 3, 2012 2:13pm
In my mind the perfect trading system is the risk:ratio...if you have a 1:3 RR you can have a system that only wins 30% of the time and you will be in profit...

and theres a lot of trading system here in FF that can make 60-70% winning rate...so using it with a 1:3 RR you will be in profit in the long run
  • #9
  • Oct 3, 2012 2:14pm Oct 3, 2012 2:14pm
Quoting Forexgogo
Agree. Even a simple EMA 5 and 20 crossing can be profitable if you know IN WHAT SITUATION you use it.

By the way, I think a majority of beginners cannot even execute a simple EMA 5 and 20 crossing correctly and consistently. This unskilled/clumsy execution may be the biggest reason for people to say "most systems in FF don't work." On the contrary, I would say "most systems in FF do work" if you execute them exactly the way the author intended.

Read "Way of the Turtles" and learn how to execute systems.

Best
Speaking of Ma's most loser retail traders enter the market after 80% of the move has occurred so they buy high and sell low.Reason this phenomena is because they wait forever for confirmation with their 10+lagging indicators and by the time indicators scream BUY or SELL market has already done the move.
In trading, you have to be defensive and aggressive at the same time
  • #10
  • Oct 4, 2012 12:44am Oct 4, 2012 12:44am
The often vilified MA cross always rank amongst the most profitable systems.... I Think people can't accept simplicity.

Every filter used to avoid whip saws always reduces profitability.... ATR, RAVI, ADX etc

Seems this is one of the most hardiest system out there and will never die.

The truth is you most likely will self destruct trying to second guess the system.
wo-yoy! wo-yoy! wo-yoy! wo-yoi! wo-yoy-yoy-yoy!
  • #11
  • Oct 4, 2012 1:13am Oct 4, 2012 1:13am
Quoting jcl365
There are hundreds of systems posted in this forum, and when I look through the threads I wonder how people develop and test them. When I backtest a system that is described here, I often find - with one remarkable exception so far - that it is unprofitable. Yet people seem to trade them apparently unconcerned if they win or lose in the long run.

When you read the description of a system here, how do you decide if you want to trade it or not? Do you go through price charts and manually simulate trades, adding the results in a pocket calculator?...
Hi,
Trading systems are developed to give people an organised set of rules to aid consistency and discipline in their trading; otherwise you are just randomly shooting from the hip.

Pretty much every system I've looked at is either unprofitable or only marginally profitable in long term testing, but there are consistently profitable traders out there, trading many different systems. You can conclude from this that the precise system per se doesn't really matter that much, it's how the trader operates that really counts. Markets are just not that neat and orderly for rigid systems to generate material profits over the long term, discretionary interpretaion and judgement is need by the trader. Most of this skill comes from experience (though some people learn a lot quicker than others).

You just need to pick and modify for yourself a system that you are comfortable with, one that fits your way of thinking about markets & trading, and offers the kind of risk tolerance and return profile that you are happy with. What you do has to fit your personal psyche or you won't be able to stick with it with the consistency and discipline that is vital.

So, take your time, pick something that makes sense to you and trade in the smallest size you can (not a demo though, you need to feel the reality of winning & losing money) until you have modified it to fit you and are totally comfortable with it. It takes time, patience and work but it'll give you something you can make profits with for years to come. Good luck!
  • #12
  • Oct 4, 2012 1:47am Oct 4, 2012 1:47am
I believe to develop any system step one needs to be:

- Find a way to distinguish between Trend/Range/Chop 'more often than not'
  • #13
  • Oct 5, 2012 10:51am Oct 5, 2012 10:51am
Hello, everyone. I'm new to Forex, and I see there are opinions about trading systems. I've just started, and that's why I need some tips for my trading system to work. I wonder, how a trading system is supposed to look like? Sorry if it is a silly question.
  • #14
  • Oct 5, 2012 2:51pm Oct 5, 2012 2:51pm
Quoting jcl365
There are hundreds of systems posted in this forum, and when I look through the threads I wonder how people develop and test them. When I backtest a system that is described here, I often find - with one remarkable exception so far - that it is unprofitable. Yet people seem to trade them apparently unconcerned if they win or lose in the long run.

When you read the description of a system here, how do you decide if you want to trade it or not? Do you go through price charts and manually simulate trades, adding the results in a pocket calculator?...
there are hundreds of systems here and indeed it's very hard to find something that works but if you look closely you will find that ideas repeat themselves. creating a trading system is the art form of trading. unprofitable systems are not completly unusefull . you can search for new ideas on how to use indicators or price action. when creating a trading system you have to have a set of trading instruments. example of a trading instrument is in how many ways can you use a clasic or a new indicator. the key is to search for the right combination.when designing something you have to have 2 mindsets: high winrate or high reward risk. the cornestone of creating powerfull trading systems are filters for entry and filters for exit. i made systems with 2 indicators and with 5. you have to find something that works . that is the only goal. combining candlesticks with indicators can also be usefull especially for the high winrate systems. for a high reward risk often times even a simple indicator like macd or a moving average crossover might work.
  • #15
  • Oct 5, 2012 3:30pm Oct 5, 2012 3:30pm
as delta trade said most systems or indicators have the same basic idea

momentum
range
mean
standard deviations


even candles themselves have these basic concepts built in
AVT INVENIAM VIAM AVT FACIAM
  • #16
  • Oct 5, 2012 6:48pm Oct 5, 2012 6:48pm
Quoting Paludo
In my mind the perfect trading system is the risk:ratio...if you have a 1:3 RR you can have a system that only wins 30% of the time and you will be in profit...

and theres a lot of trading system here in FF that can make 60-70% winning rate...so using it with a 1:3 RR you will be in profit in the long run
You're not thinking about this properly. Let me point out how this type of thinking is dangerous:

#1) Your statement implies that you can just take one of the 60/70% winning systems and just make one tweak by committing to seeing price move your direction 3R or else stop out. This isn't how things work. The systems that have high win ratios have those high ratios simply because they are NOT trying to get a 3x risk profit out of ANY individual trade. The simple facts of the matter are that price will more often than not come back and smack your S/L a lot more than your T/P simply because the T/P is so far away. Price can move 1R and come back to take our your S/L, or go 2R or 2.5R or 2.9R and go all the way back and take out your profit. That's a lot of room for things to go back on you. The S/L though....it's really really close once you pull the trigger.

In general, you can expect that most of the time when you are going for big R/R you will find that this is hard to achieve. A lot harder than those using that figure lead one to believe.

#2) Losing Streaks - this is something that people don't take into consideration. With a 30% win rate, you need to calculate your max losing streak. If you're going to take 50,000 trades in your life then the forumal is as follows: -(ln(50000)/ln(0.70)). This comes out to 30 losses in a row.

So if you take 50,000 trades using this plan, you can expect to see 30 losses in a row at some point in time. This is considered "normal" for such a system. Anything less than this is "normal" as well and you'll see it more often. So you'll see 22 losses, or 15 losses, or 10 losses in a row on a pretty consistent basis. Most people will bail on a system if it takes 30 losses in a row. And what if you just so happen to pull the card that has you taking the 30 losses upfront on Day #1 instead of 10 years down the line? Will you stick with the system or panic?

I think that it's a very, very rare person that can work a system with a 30% success rate consistently.
  • #17
  • Oct 9, 2012 7:37am Oct 9, 2012 7:37am
Quoting Davit
Your system is YOU!
Everyone can enter a market but how you close a trade will make the difference.
watch these videos by Jason Alan Jankovsky and you'll get an understanding of the market and your psychology 1st before a system.People trading "systems" without understanding the market and self lose!
Read and watch http://www.fxstreet.com/search/contr...1-e9bf77216d2f[size=2]...
For those who don't grasp the principle I'll explain in broad terms.
For every move up and down PA usually retraces Fibonacci .618(very strong)
50%(not a fib number but strong as well) and weak 23 and 38
Stronger the move up greater the retrace generally but not always so we take advantage of retrace to ride the trend in pullbacks.

I see lot of new traders on this thread.Understand that you must put effort learning about Price Action,S/R,Order Flow,Fibs to get a grasp in trading otherwise no system will make you a successful trader.
FX-Pro made it plain in 1st post.Your success in trading depends upon you and nobody else.
In trading, you have to be defensive and aggressive at the same time
  • #18
  • Oct 9, 2012 7:50am Oct 9, 2012 7:50am
People are lazy...it's as simple as that. 99% of people here expect to simply copy a system and then turn into a millionaire over night. Or they back tested it for a week and consider that good enough

I back tested my strategy for 2k candles on 8 currency pairs and then spend another 2 months forward testing it on a demo account before taking it live. The back testing is a major pain in the ass if you don't have an EA that allows you to do it automatically...it involves HOURS of going over charts. Most people don't have the discipline to do that, which is probably why most traders fail.

The thing is, once you have a system that works for YOU, losses won't bother you all that much...because thanks to your back and forward testing you KNOW it works in the long run. Without that you're essentially hoping that it'll work, and "hopium" is the enemy of good trading in my experience.
  • #19
  • Oct 9, 2012 9:32am Oct 9, 2012 9:32am
"When the student is ready, the teacher will appear".

Find a mentor...

Developing a system seemed nearly impossible until I had the knowledge that my mentor passed along to me, and that took about 14 months.

Study everything you can about fibonacci, and study it with a mentor who knows how they really work... FIB CLUSTERS!!!!!!!!!

Now... add advanced trendline techniques, add moving average crossover techniques, add harmonic patterns, add advanced Elliott Wave, add currency correlation, add timing techniques and then add indicators - and when you add indicators - learn how to read and interpret what they are saying... dont just throw one on the chart and say ok... dig deeper.

Now backtest all of it... and forward test all of it... and trade it demo before trading it live, and when you make it to trading live, dont blow your account up with overconfience...

I submit to you that everything you need to know about where price is moving next is right in front of you on the charts... YOU have to learn how to interpret what price is telling you...

and remember..... "practice makes perfect" is BS.

"perfect practice makes perfect"

Good Luck to you on your Forex journey...
  • #20
  • Oct 10, 2012 1:42am Oct 10, 2012 1:42am
Quoting jcl365
There are hundreds of systems posted in this forum, and when I look through the threads I wonder how people develop and test them. When I backtest a system that is described here, I often find - with one remarkable exception so far - that it is unprofitable. Yet people seem to trade them apparently unconcerned if they win or lose in the long run.

When you read the description of a system here, how do you decide if you want to trade it or not? Do you go through price charts and manually simulate trades, adding the results in a pocket calculator?...
There are platforms like Esignal that have a back testing component using past history. There is even a little indy called practiceanytime for mt4 but it is a little slow.
I don't think any system is profitable if you took every signal. It's more like you find a method or combo of methods you like and then add your discretion in filtering out the ones that don't look so good.
Example if you like to sell or buy tops and bottoms, only do so if there is a retest and failure at an important level not just by eyeballing a chart and saying there is a pin therefore it's a top. Same with MA crossovers, look left did it happen coming off a double bottom with a strong candle or it just happened in the middle of the chart. These are the things you look for in your system..
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