June 22, 2011

Why Profitable Trading Systems Are Not Necessarily Profitable For Everyone

One thing that I have noticed in all the time I have been trading the forex markets is that if you take a perfectly profitable trading system and let two different traders trade it, you will often find that one trader is profitable whilst the other one loses money trading the exact same system. I know this to be true because I am aware that many people have tried trading my main 4 hour system (see right for more details) and not got the same kind of results as I have.

So what are the reasons for this disparity?

Well I think the main reason is because a lot of the best and most profitable trading systems do not have cast-iron trading rules that are set in stone. There are often clear entry and exit points and instructions to take a trade when certain conditions are met, but it is often left to the trader to only trade the very best set-ups, so that person needs to be capable of reading the markets and having a certain amount of intuition.

This is certainly the case with my own trading system because I only tend to enter between one and three trades per week across the major currency pairs, and there are often a few trades that I will turn down simply because they do not feel right.

The fact is that the more years you trade, the easier it is to get a feel for the markets. After a while you will quickly learn to ignore some of the riskier borderline set-ups, and instead focus your attention on trading only the very best high probability set-ups.

Another reason why some people are unable to make profits with seemingly profitable trading systems is simply because they lack discipline. The reality is that some people just cannot accept losing trades, so when they have one or two losing trades in a row, their discipline goes out of the window and they start upping the stakes and chasing their losses. This effectively separates the winning traders from the losing traders.

Finally there is one other reason why different people will have different results trading the same system, and that's simply because of time constraints and other issues. The self-employed trader who works from home, such as myself, has a lot more freedom and can sit around and watch the markets all day long waiting for the best set-ups, whilst other traders, such as those who are in full-time employment, do not have this luxury.

It is also the case that time differences can also put some traders at a disadvantage. For example two traders may trade the same breakout system, such as the early morning breakout system that I like to use, but whereas the UK-based trader can trade quite easily at 08.00 in the morning, this is the middle of the night for US traders. Therefore they may choose to trade the same system when the US markets open instead, but this is a lot harder to do because many of the major currencies will already have posted some big moves earlier in the day.

So the point is that you will rarely find a trading system that is universally profitable for everyone. Even the Forex Morning Trade system, which had very clear trading rules, gave different results for different people because of slightly different readings on one of the indicators that was used.

At the end of the day you simply have to find a system that works for you, and have the discipline to stick to this system through the good times and the bad, providing it has been proven to make money in the long run.



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1 Comment on Why Profitable Trading Systems Are Not Necessarily Profitable For Everyone »

June 22, 2011

frank page @ 4:20 pm:

Hi James,
Good Article! I think the main reason different traders get different results from the same system is as individuals we all have different psychological profiles. As traders we need to develop our own trading systems which we feel comfortable with e.g you like moving averages, i like charts without them and don't use indicators!
Good look with the trading!!

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