Lesson 6: Forex Trading System – The Search for the Magic Bullet

The first time I got into forex trading, the whole forex world for me, revolve around the search for the perfect trading system. I tried different systems from different traders. Experimented with my own system. Copied other trader’s systems without their consent and so on. The search, while it lasts, was fun. Because you have the idea that in the future, you might stumble across the perfect system. The magic bullet. The holy grail. That could make you rich in the forex market. But this search was but an illusion. Like someone running in a treadmill. You get tired but you’re still in the same place.

Personality Must Match

The search ended when I accepted the fact that there is no magic bullet in trading. Different forex trading systems work for different traders. Because ultimately, the forex trading system matches the trader’s personality.

The key in finding the perfect trading system lies in knowing yourself. It might sound cheesy but its true. It is hard because you need to be brutally honest with yourself. You can not say “I’m a patient trader and I can wait for months without trading. So the perfect system for me is trend following.” But in reality, you can’t stand a minute without looking at the market. You are a day trader, you have to be honest and pick up a day trading system instead of a trend following system. And be good at it.

The Timeframe

Many people will claim, gurus, trading system sellers and seminar speakers that there are forex trading systems that will work on all kinds of time frame. And funny enough, they have it available in a DVD :). 5 minute, 10 minute, 30 minute, day chart, weekly chart, monthly chart and so on. But based on my experience, they are selling you dreams. There is no forex trading system that works on all time frames or even on all instruments or currency. Its a dream to keep on chasing. To keep on purchasing seminars and to keep on buying forex strategies.

In choosing a forex trading system that work (or creating one) you need to decide what currency and what time frame you should trade. There was once a great trader in commodity that made millions. All his colleagues thought that he had money on all the markets in the US. But the funny thing is, he only trade in cotton market. Because that’s the only market he knows. Because his family is in the cotton trade. He had an edge and exploited it.

The Market

You need to find your edge. A market that you know like the back of your hand. If you’re in the US and a Filipino, wouldn’t the pair USD/PHP will make more sense to trade than other pairs? Because you know what is happening on both countries. If you’re an avid news reader and is monitoring the Euro crisis, wouldn’t EUR/USD make more sense to you? I have a relative in Japan and my primary business is in the US, so I trade USD/JPY and it proves to be profitable for me, because I know what’s going on on both countries.

Use what you know and exploit that edge.

The Indicators

Once you have objectively assess yourself and decided what time frame and market you’ll trade. You need to find an indicator that will tell you all about the charts. There are literally thousands of indicators out there. But since this is the basic, I’ll tell you the most important of them all. And the one that you should know well before adding more indicators to your chart. Its the most basic foundation of trading and you must do your best to get to know this indicator. Japanese Candlesticks.

Make it Personal

Once you learned and master japanese candlesticks, all is yours to make it personal. I myself added an indicator on top of Japanese candlesticks. I use ichimoku in conjunction with the candlesticks. And I feel comfortable trading with those two on my charts. My friends uses Simple Moving Averages, some uses Bollinger Bands with candlesticks. I think, on this part, its best to experiment on what indicator that you feel comfortable using. Once you have done that, you can move on to the next part which is “creating your own trading system”.


  1. I want you to try different trading systems. Search for Simple Moving Averages, Exponential Moving Averages, Bollinger Bands, Stochastics, Fibonacci and try to find a trading system that fits your taste.
  2. Learn more about Japanese Candlesticks – Reversal Patterns (if you need a book, here’s the link to the best forex trading system books.)

PREV: Lesson 5: Forex Trading Money Management

NEXT: Lesson 7: Forex Trading System Development