A team of Forex system testers recently developed a well-known forex trading strategy. If you have a forex trading strategy or technique that is losing consistently, why not reverse it and make a profit? This sounds simple, right? However, this does not work in practice. It doesn’t work because forex trading techniques must be reversed. First, the stop must be the same size and target as it is. This means that your return on risk must equal one. Your potential gain must equal your potential loss. Spread costs are a factor in this requirement. The spread is only included in the buy leg of each transaction, which makes it difficult to reverse the process.
This brings us to the second condition that must be met before any forex trading system, or technique, can be reversed. It is the spread. Ideal spreads should not be spread at all or very low spreads. Spreads allow buy and sell transactions at the same price levels. This is great if you plan to reverse the trade direction. Brokers will often charge a commission instead of a spread. This is a way to avoid reversal problems. Brokers or currency crosses that have small spreads are an option if this is not feasible.
Third, transaction costs (broker commissions and spreads) should not exceed a small portion of the possible gain or loss. If the spread is 2 dollars and your target is 10, the crypto trading brokers share of the gain will be very high. Target transactions that cost less than 5-10% of your target should be your goal.
These criteria can be met by many forex trading methods and systems. One of these is the well-known Good Vibration Forex trading strategy. However, you can create one if you don’t already have one. These criteria are also met by many systems that do not use hedging, stops or grid system concepts.
If your system meets all the criteria, you can do the following. The system would be back tested over a lengthy period of time using multiple currency crosses. This should include all market conditions. This would be tested in two ways. First, you would trade the system exactly as it was intended. The second would be to trade the exact opposite. If the system signals you to sell, it will signal that you are ready to buy. This will likely result in one system being a loser and the other being a winning one. Reassess your system, and test again if this happens.
Then, you should analyze the times and conditions in which each system is profitable. Profitability can be determined by the day of week. Sometimes, profitability can be determined by the time of the day. Different currency crosses might show different results. Avoid trading judgments that are based on market conditions, such as whether the market trending or consolidating. These conditions are unpredictable and will not be known until the end.
You might be surprised by your discovery. It is possible that a currency makes a profit every Monday or Wednesday. Your system might be profitable from Monday to Wednesday, but not on Thursdays or Fridays. While the reverse system may work well in Asia, the normal system is more effective in Europe and the US. It is possible to trade both versions of your system, depending on the situation.
These are just a few thoughts to consider when you think about forex trading systems or forex techniques. Forex trading can be a challenging and rewarding endeavor. Finding a forex trading strategy that is efficient and gives you the edge most of the time can make it fun and rewarding.