Wednesday, August 11, 2010

Are you Ready to Make it in Automated Trading ? : Five Questions you Should Ask Yourself Before Expecting Success

The truth is that we all want to get into forex automated trading systems and reap a profit from the market time after time after time without any concern for draw down periods, eventual loses of profitability or such other problems that may arise from the mere trading of any strategy. These understandable - yet extremely dangerous - attempts to avoid the "bad" parts of trading leads inexperienced people - sadly more often than not - to fall prey to systems that do not have enough evidence of profitability or which have evidence that is simply unreliable. The reasons why people tend to lean towards these systems are actually quite simple, they are not ready yet to achieve long term success in automated trading.

During the next few paragraphs I will share with you the five most important questions you should ask yourself to know if you are actually prepared right now to deal with and use long term profitable strategies. The questions attempt to measure your degree of preparation to the dangers and inherent pitfalls of trading and whether or not you are actually ready right now to face the challenges that will come with this decision. As a matter of fact, chances are that if you do not answer at least 4 of these 5 questions positively you will fail when attempting to use a long term profitable system to succeed in forex trading. (these questions are actually based on many interviews I have done with new and experienced traders)

1. Do you think you can make it in trading within 2 years ? Don't answer this question so quickly. Of course, trading is hard, but do you believe you can make it easily around this market or do you believe it will take you more than two years ? I have found that most new traders believe that it will only take them a year, two year tops, to reach the status of being profitable in trading while - as a matter of fact - it has taken at least 3 to 5 years for most profitable traders I know. If you have a mindset focused on the next 1 or 2 years then many long term profitable systems are bound to be a disappointment since you will be looking for monthly or weekly results that most of the time won't be there.

2. Do you suffer through open losses ? When you have a trade that is open in floating draw down, do you feel depressed ? do you feel like intervening ? A very important characteristic of people who are able to trade long term profitable systems successfully is their ability to withstand open losses without the slightest degree of emotion attached to their trades. Perhaps this is one of the hardest things to do for new traders but achieving this point is vital for long term success.

3. Would you trade a system with this equity curve (5 month results) ?
Most new and inexperienced traders (the guinea pigs in my animal kingdom trader classification) would obviously say "never, ever" while more experienced traders would ask more questions about the system. It becomes obvious that a 5 month period is statistically irrelevant for a long term profitable system and knowing more about the long term trading characteristics of the system is vital. If you understand the concepts of "long term focus" then you are a step closer to being ready to trade a long term profitable system.

4. Do you change systems often ? Another very important characteristic of people ready to trade long term profitable systems is that they are capable of committing to a given trading system for larger amounts of time. Most new traders will quickly ditch and change systems when their short term results do not fall in line with their expectations (a reason why long term profitable systems are so hard to use). If you don't change systems often (you have stayed for at least a year with a single system), you can add one point to your scoreboard.

5. Is a 30% average compounded yearly profit bad ? Without a doubt, almost all new traders will say that this average yearly profit value is extremely bad since they have seen and used systems that have been able to make much more than that within weeks if not even days. The reality here however is that traders who have a little bit more experience and a true focus on the long term aspects of trading will definitely say - it is a good profit target. If you think that a 30% average compounded yearly profit is a good profit standard, then you have passed this test.

Perhaps if you are a new trader many of the above questions won't make a lot of sense to you and you may even consider me "close minded", "sore loser" or any of the other qualifications used by new traders to describe more experienced ones. However, with time you will find out that the above questions are very sound and that they do signal a turning point in a trader's thinking and profitability goals.

If the above questions make sense and you have answered positively to at least 4 of them then you are now - most likely- ready to start your journey in long term profitable trading using systems with realistic profits and draw down targets. Of course, if you want to learn more about my work on this field and how you too can start designing, programming and using your own systems please consider joining, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to trading systems. I hope you enjoyed this article ! :o)

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