Choosing a Signal - Tips part II - Powered by Kayako SupportSuite Helpdesk Software

07 Sep 2010

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	Choosing a Signal - Tips part II

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1 Make your Trading Plan and stay with it.

2 Understand the risks of Internet Trading

3 Read again our policy about Trading Risk and Terms and Conditions.

4 "Get rich so fast" or "double your account" are another marketing strategy to attract customers.

5 Take a carefully look to ROI or Return over Investment. Too big often equal to too dangerous.

6 Trade on demos during some time before go real. If your plan is to trade during years maybe one testing is not enough.

7 Trading less than a standard lot means getting in for less - and having less to lose.

8 Always remember currency trading offers far more flexibility than other markets, but long-term success requires discipline in money management.

9 Discover first what type of Forex Trader are you? and choose a signal according to your type

10 Don't forget to check clones before buy

11 Calculate your expectancy. This is:

Expectancy is the formula you use to determine how reliable that signal you want buy is.
You should go back in time and measure all trades that were winners versus all your trades that were losers.
Then determine how profitable winning trades were versus how much losing trades lost.

Take a look at last 10 trades. Determine if you would have made a profit or a loss. Write these results down.
Total all your winning trades and divide the answer by the number of winning trades you made. Here is the formula:

E= [1+ (W/L)] x P – 1

where:

W = Average Winning Trade
L = Average Losing Trade
P = Percentage Win Ratio

Example:
If you have 50 trades and 30 of them were winning trades and 20 were losing trades, your percentage win ratio would be 30/50 or 60%. If your 30 trades made $4000, then your average win would be $4000/6 = $666. If your losses were $2500, then your average loss would be $2500/4 = $625. Apply these results to the formula and you get; E= [1+ (666/625)] x 0.6 - 1 = 0.23 or 23%.
A positive 23% expectancy means that your system will return you 23 cents per dollar over the long term.

There another ways to calculate trading system averages over long term. Rent a Signal also provides some statistics and calculation where you search for any signal.

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15 Oct 2009 12:37 AM