Criterias for a profitable trading system
There are quite a number of different criteria for evaluating trading systems. In this article we describe those who are in our view most important, and used by us to check our own trading system. And if your one has at least three signs of listed below, you can be sure that soon you will be able to reach those financial goals set for yourself.
Take Profit & Stop Loss
Take Profit and Stop Loss ratio for a particular transaction is very important. Forex market - this is a very complex system, and a combination of many factors influences on it. It is no secret that often the market''s behavior cannot be explained logically. In this case, the ratio of risk and profit saves your deposit. Remember this simple rule:
TP * 2 (min!) = SL
In other words, your Take Profit level should be at least twice the Stop Loss. But what do the most investors expect from their trading systems? First and foremost, every investor thinks of profit. Any system must, above all, be profitable for some time. Some investors agree on the symbolic profit for their investments, but do not like to risk, others want more and are be ready for different adventures. The more profit you can get, the more risk you should accept. This is one of the major financial axioms. But if you know the most advantageous time or situation to enter the market or purchase of assets, you can reduce your risks and increase potential profits.
The uniformity of profit
On a par with profit, an investor thinks about stability. You invest and expect that your investment will bring you income for a long time. In this context, the system can be very different from one another. For example, a trading system can do 10 transactions a year with a large ratio of TP/risk. Another trading system will make 3 - 2 transactions per day, with a slightly lower ratio of TP/risk. The more transactions will be in your system, the more certain you can count on it, and the greater the chance that the system will continue to work on. In other words, the transaction should be as evenly distributed on the interval of time. So you can get a clearer understanding of your trading system.
Last, but not least important factor by which you will evaluate your trading system will be realism of its algorithm. If your strategy is not incompatible with the interests of the broker, it will open your orders. But it is doubtful whether the broker wants to deal with the owner of the robot, which opens the transaction every minute. There is also a huge number of other reasons why the broker cannot pay your money, such as the use of slippage or trading agreement, etc.
Important note: testing your trading system, consider the terms of the broker you work with!