Evaluating a Forex Method

One of the questions I'm often asked is what constitutes a good trading method (or how do I know if a trading method is really worth buying). In this article, I'll show you what most methods look like (and why they are bad) and show you a simple way to evaluate a trading method.

If you take a close look at most of the so-called Forex trading methods and systems on the market, they consistently share the same shortcomings:

- They are incomplete. Too many courses teach hours of 'in theory' -- but spend little to no time teaching a step-by-step plan to help you trade.

- They don't include risk management. This is the number one mistake most traders make -- not managing risk in their trades. If the system or method you're considering doesn't teach risk management consistent with their method, you would do well to walk away from it.

- They focus strictly on fundamental analysis. Methods that focus only on fundamental analysis are incredibly time consuming and subjective and require much deeper understanding of more complex economic and financial issues. If you don't understand them, you won't succeed with such methods.

- They require you to "day trade". Many of the methods and systems I've seen require you to be in front of your computer nearly 24/7 to be able to 'react'. Reality should tell you how impossible this is.

What constitutes a "good" method?

Based on the methods and systems I've seen over the last several years, I've created a simple 4-part measurement that I use to determine if a trading method is good for me:

- The method must be complete and teach the setup conditions, entry rules, initial stop rules and exit strategy rules while leaving no decision to chance.

- The method must teach and include specific guidelines for risk management and money management in accordance with its method.

- The method must utilize technical analysis, but it cannot be a completely mechanical or automated system.

- The method must be practical in terms of time spent applying it: I favor methods that only require 20-40 minutes a day.

The steps above have helped immensely in weeding out the 'pretenders' among trading methods and focusing only on the 'contenders'. Methods which provide thorough explanation of how to apply, protect and trade the methods are the only types you should use in your trading.

by Eugene Ng -

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