How to use a Trading System to Equipping Yourself in Forex Trading?

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I. The Importance of Self-Empowerment

To learn successful trading skills in the forex market, the key is to be self-reliant and independent. In my view, being strong means learning how to fish, while dependence is hoping someone else will give you fish to barely survive. Many companies offer training and trading strategy services, even claiming their systems can make you rich quickly. Undoubtedly, there is no holy grail in this world! Just as airlines cannot replace pilots with autopilot systems, the indicators or trading systems you buy cannot guarantee a 100% win rate. If a company tries to convince you that you’ll get rich quickly by following their system’s buy and sell signals, you’ll likely end up disappointed.

Let’s assume you’ve created a trading system with a 95% win rate, and by following its signals, your capital doubles every few months. If you had such a system, would you sell it for $1,000? $3,000? $5,000? $10,000? Or even $50,000? I think you wouldn’t sell it at all. If you really had such a system, you’d only need to do one thing: approach a major financial institution, like Bank of America or Royal Bank of Scotland, and show them your system’s exceptional trading record. If it were that good, these institutions would gladly pay you $1 billion or more for it.

Just as autopilot systems cannot function without pilots, there is no perfect trading system. It’s hard to imagine people entrusting their lives to a computer or autopilot system without a pilot’s oversight. We’ve all bought many electronic devices in our daily lives, such as TVs, DVD players, cameras, etc., and they all eventually break down. Don’t invest your hard-earned money in systems that claim to make you rich quickly.

Pilots don’t even know where the autopilot buttons are until they’ve mastered flying techniques. Without a pilot’s close monitoring, autopilot systems cannot prevent malfunctions. Even the most powerful systems cannot make the best decisions for passengers in the event of an accident; they only execute pre-set programs. There are too many variables during a flight, and programs cannot cover all scenarios. Autopilot systems have limitations and cannot always function normally.

As a trader, you should feel that sometimes trading conditions are ideal, as if using an autopilot system. However, this state cannot last forever. You must realize that market conditions change rapidly and sometimes without warning. This requires you to have the ability to take the captain’s seat and ensure the plane’s safe arrival at the airport. That is truly successful trading.

I can never forget the events of September 11, 2001. That day, I was watching four different currency position from my home office. Suddenly, they rocketed in the opposite direction of my positions. If I had used an automated trading system that day, I would have lost a lot. Seeing the danger, I manually closed those four positions, saving some of my profits.

In fact, becoming a successful trader requires rigorous and professional education and training, no less than training pilots, doctors, and other professionals with specialized skills.

No matter what job you do, you must use your tools as effectively as possible. Suppose you’re a digger; you should learn how to operate excavators and bulldozers and know which tool to use in each situation.

To learn forex trading, it’s necessary to learn from those who are already successful in trading and understand the tools they use. Now is not the time to haggle over tools. Being penny-wise over free or low-cost trading software is like navigating the ocean in a 12-foot canoe with just a compass—it’s a clear mismatch of tools and environment. A sturdy, sufficiently large, advanced cruiser equipped with the latest meteorological instruments is the wise choice. When trading in precarious situations, don’t skimp on high-quality trading tools.

In terms of forex trading alone, I recommend the MetaTrader 4 (MT4) / MetaTrader 5 (MT5) trading platforms.

The MT4 and MT5 trading platforms have a variety of trading indicators, and there are many trading systems available in the market that can be used on both MT4 and MT5 platforms. Based on these indicators, you can create a trading system that suits your personality. Systems composed of these trading indicators can be validated and analyzed against data from the past few years at any time, allowing traders to determine whether they have an effective trading strategy or a “deviated” trading strategy. On the MT4 trading software, you can create a set of trading strategies based on your personality traits, embed them into the system, and then test them. If they prove to be effective, you can have the trading system alert you when buy or sell orders are triggered. (See the image below)

The most important thing about a trading system is that it should be simple and easy to use. Whether your trading strategy is very intuitive or requires system settings, it must have three very important parts:

➤ It must be able to determine the current market direction.

➤ It must have a consistent and effective entry strategy.

➤ It must have two clear exit strategies: one to prevent you from suffering significant losses, and another to help you capture profits.

II. Determining Market Direction

The MT4 charting software can assist you in determining the market’s direction. In the Figure below, you can observe a line that fluctuates up and down with the price movements. This line is drawn by the computer based on the candlestick chart (a type of chart that reflects the opening, closing, high, and low prices of the market over any given period), known as the moving trend line. It vividly reveals the market’s direction and the current potential trend. When you turn on your computer and browse the chart for any time period, if the current candlestick is above the moving trend line, it can be considered that the market is in an upward phase during this time period; if the current candlestick is below the moving trend line, the market may be in a downward phase.

"Regardless of the time frame you trade in, using the moving trend lines of a trading system can easily help you determine the market trend direction.

The indicators in these charting programs are like the autopilot buttons on an aeroplane, but as mentioned before, the plane cannot fly on its own; it requires the pilot’s control. Before using the autopilot system, you need to understand how it is set up.

Oscillators (which are also derived from mathematical formulas, and only represented as curves on the chart to reflect price fluctuations) are one way to reflect market direction. In any time frame, using moving trend lines to judge market direction is very helpful.

A common mistake traders make is to subjectively assume that a trading system created on a 30-minute chart will apply to any time frame, such as the 1-hour chart or even the daily chart. Sometimes the system may indeed be effective. However, when you use a trading system from one time frame to another, it’s best to adjust the system’s settings to optimize its performance in the new time frame. When selecting trading software, two points are extremely important: it should allow you to adjust settings and conveniently call historical data for testing and verification. These features are available in both MT4 and MT5 trading platforms."

III. Trading using multiple time frame charts

As a forex trader, it’s crucial to adapt strategies and tools to the specific conditions of the market and the time frame you’re working with. The ability to customize and test your system is key to success in the dynamic forex market.

When trading with multiple time frame charts, it’s important to remember that the direction of price movement in a lower time frame is determined by the direction of price movement in a higher time frame. Let’s consider two-time frames, for example, the daily chart and the 4-hour chart, using the MT4 short-term trading system simultaneously in both.

Do you recall the MT4 trend-following indicators at the bottom of the chart? Which one monitors price fluctuations? In the following figure, what happens in the 4-hour chart when the indicators in the daily chart begin to show a U-turn? The price also makes a U-turn in the 4-hour chart, doesn’t it? Always remember, that the price movement in a shorter time frame fluctuates with the price movement in a longer time frame. This principle applies to all time frames and is a solid trading method."

As a forex trader, understanding the interplay between different time frames can provide a strategic advantage. It allows for a more comprehensive view of market trends and potential entry and exit points.

IV. Conclusion

All successful traders create a trading plan and trade according to it. After you have built your own trading plan, it is recommended to use the “Trade Grading Checklist” provided by MT4 to repeatedly check your plan. This tool can help you calculate the success probability of your trading plan. It can also calculate important entry and exit points that you should be aware of. The grading tool contains seven key points, indicating several possibilities for you to make money. These include the use of indicators, candlestick patterns, Fibonacci numbers, counter-trend lines, and more.

Trading should be simple and enjoyable. Any behavior that tries to impress you with a variety of knowledge and indicators will only make you more confused.

A cluttered mind will lead you down the path to financial ruin. Never use too many complicated indicators; always adhere to the principle that simplicity is beauty!

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