Should I Buy This Forex System?

by : Jon Provencher

There are a number of things you should consider when performing a forex system comparison. There are many forex system vendors out there, this guide 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 has not been around for a year, ask what the back-test results were.

2. Draw-down - Unfortunately Draw-downs are unavoidable in forex trading. There are many forex systems making 1000's of pips every year, but they fail to inform you that you could have lost all/most of your account before making those 1000's of pips. Always check what what draw-downs the system has had in the past and use this information to calculate how much you are going to trade to ensure your account is not wiped out. Consider how the draw-down would have affected you emotionally, would you have stuck with it?

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

4. Win Ratio - Professional traders often have a win ratio of close to 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 can be too good to be true.

5. Stop/Limit Orders - Check that the strategy method uses stop orders. A stop order is set to minimize your loss in case the trade does not go in your favour. Without a stop order set your losses could be huge.

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

7. Timing - Check what time commitment the strategy method needs and consider how this fits in with your schedule. You should also check when 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 - Check what additional costs you will incur to run the strategy method. Does the strategy method require a specific charting package or data feed to run?

10. Refund - Check if a refund is offered and what the conditions are.

Good luck with your forex system comparison.