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Forex System Traps - What to Look for

By: Jon Provencher

There are a number of things to study when performing a forex system comparison. There are a lot of forex system providers out there, this top 10 list will assist you to pick the best one for you.

1. History - What kind of history does the system vendor provide? A good strategy method provider should be able to tell you the systems monthly results for at least the past year. If the strategy method hasn't been available for a year, you should ask what the back-test results were.

2. Draw-down - Drawdowns are unavoidable in trading forex. There are many forex systems making 1000's of pips every year, but they neglect to advise you that you could have lost all/most of your account before making those 1000's of pips. You should always ask what what draw-downs the system has had in the past and use this information to calculate your trading size to ensure your account is not wiped out. Think about the emotional impact of the draw-down, would you have stuck with it?

3. Reviews - Search to see if others have traded the same forex strategy method. What are they saying about the system? Find out if the strategy method has its own forum and have a look at what kind of feedback the strategy method is receiving. Often existing users have experimented with the system and found a better way to trade it, ask if there are any new settings before you start trading.

4. Win Ratio - Professional traders often have a win ratio of only 50%. The profit is in how they manage the trade, by cutting 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 strategy method uses stop orders. A stop order is set to minimize your loss if the trade does not go in your favour. With no stop order set you could face a huge loss.

6. Paper Trade - Before trading any strategy method with real money you should paper trade it, or trade it with a demo account. This will give you a chance to practise using the strategy method until you feel comfortable with it, and give you an idea if it is worth trading with real money. Many systems can also be back-tested to give you proof of how the strategy method performed historically.

7. Timing - Find out what time commitment the strategy method requires and study 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 strategy method.

8. Money Management - What kind of money management strategy method does the strategy method 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 might incur to run the strategy method. Does the strategy method require a specific charting package or data feed to run?

10. Refund - Find out if a refund is offered and what the conditions are and if they can be met easily.

Good luck with your forex system comparison.

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