Introduction

The Dukascopy community has drawn people from diverse backgrounds, pursuing different passions. Therefore whether one is a model, writer or poker player in on order to crystallize the winning prize the rules dictate that a minimum trading turnover be achieved among other conditions as shown in Fig 1.


Fig 1: Prize and awarding Rules for the Fundamental Analysis Contest.

Therefore, regardless of one’s passion and interest, ultimately to be successful one has to be a god trader. Being a good trader starts with creating a working trading system.

A trading system can be defined as a set of specific rules, or parameters, that determine entry and exit points for a given Forex pair. Further to that a trading system is a comprehensive strategy that takes into account six very important factors.

In this article, we will cover the general approach to creating a rule-based trading system.


  • Examine your Mindset

Know yourself: The first port of call will be choosing the right contest that matches your style, passion and competences among the various contest on offer in the Dukascopy Community. This will ensure that you enjoy whatever you will be doing and eventually open up the opportunity to start trading you winning prizes. When it comes to trading take a look at yourself and your attitude towards risk. Perform a personal SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.

Match personality to trading: Be comfortable with the type of trading conditions you will experience in different time frames. As an example, if you have determined that you are not the kind of person who likes to go to sleep with open positions in a market that is trading while you sleep, perhaps you should consider day trading so that you can close out your positions before you go home. The bottom line is trade during hours that you are comfortable with and only take the risk you are willing to accept.

Be prepared: Preparation is the mental dress rehearsal of your potential trades. By planning trades in advance, you are setting the ground rules, as well as your limits. If you know what you are looking for and how you plan to act if the market does what you anticipate, you will be able to be objective and stand aside from the fear/greed cycle.

Be objective: Do not become emotionally involved in your trade. Trading is not about ego, it is a matter of training yourself to accept that not every trade can be a winning trade, and that you must accept small losses gracefully and move on to the next trade.

Be disciplined: This means that you have to know when to buy and sell. Base your decisions on your pre-planned strategy and stick to it.

Be patient: Trading the turnover requirement for Dukascopy can be a tall order for most traders and requires considerable amount of patience. Learn to sit on your hands until the market gets to the point where you have drawn your line in the sand. If it does not get to your entry point, what have you lost? This also calls for you not to abandon your trading system in a bid to achieve more trading turnover. Your trading system dictates the trading volume.

Have realistic expectations: This is linked to the above point on patience. This means that you won't lose your focus on reality and miraculously expect to turn $1,000 into $1 million. Consider what some of the best fund managers in the world are capable of achieving - perhaps anywhere from 15-40% per year and are well-paid to do so. Go into trading expecting a realistic rate of return on a consistent basis.


  • Identify Your Mission and Set Your Goals


Plan: You must sit down with your calculator and determine what kind of returns you need to reach your financial goals. This also entails one to be very realistic with their financial goals.

Understand the trading dynamics: Next, you must start to understand how much you need to earn in a trade and how often you will have to trade to achieve your goals taking into account the possibility of losing trades. This may bring you to the realization that your trading methodology may be in conflict with your goals. Therefore, it is critical to align your methodology with your goals. It is at this point that you will have a rough idea of how long it is going to take you to complete the minimum trading turnover requirements.


  • Ensure You Have Enough Money

Various contests in the Dukascopy Community have varying prize monies and cash is the fuel needed to start. The first thing is that you give your best shot at the contest of your choice to ensure that you have sufficient liquidity.

Cash is a cushion against losing trades. Without this cushion, you will not be able to withstand a temporary drawdown or be able to give your position enough breathing space while the market moves back and forth with new trends. Your trading system and therefore trading volume should be guided by the available cash in your account.


  • Select a Market That Trades Harmoniously

Select Currency pair: Pick a currency pair and test it over different time frames, starting with the weekly charts, then proceed to daily, four-hour, two-hour, one-hour, 30-minute, 10-minute and five-minute charts. Try to determine whether the market turns at strategic points most of the time, such as at Fibonacci levels, trend lines or moving averages.

Determine key levels: Set up support and resistance levels in different time frames to see if any of these levels cluster together. Repeat this exercise with different currencies until you find the currency pair that you feel is the most predictable for your methodology.

Look at the Fundamentals: Once you have a currency pair that you feel comfortable with, start reading the news and the comments regarding the particular pair you have selected. Determine if the fundamentals are supporting what you believe the chart is telling you.


  • Test Your Methodology for Positive Results


Demo trading: A good driver can get to his destination in virtually any vehicle, but an untrained driver will probably not make it, no matter how great fast the car is. This makes this step the most important part of trading as the performance of a trading system is more about the trader than it is about the system. Therefore give yourself sufficient time to understand the trading platform, and your developed system on a demo account. The good thing with the Dukascopy Community is that you can test your strategy on the Traders Contest or Strategy Contest depending on your trading system and compare the monthly returns from the accounts and determine if they match the expectations and possibly improve the strategy. You can also take advantage of the Dukascopy Connect to chat with more experienced traders and profitable and get the much needed advise on how you can improve your trading system.


  • Measure Your Risk-to-Reward Ratios and Set Your Limits


Set Stop Loss Levels: Always use stop loss in your trading. Calculate the number of pips your stop is away from your entry point and the amount of money you stand to lose in the event that the stop loss level is reached. Calculate the percentage your stop loss would be as a percentage of your trading capital. As an example, if you have $1,000 in your trading account, 2% would be $20. Be sure your stop loss is not more than $20 away from your entry point. Adjust the trading volume so that the pips to the stop loss level will coincide with the capital you are willing to risk.

Set Take Profit levels: If the take profit levels is twice the distance from the entry point as the stop loss level, this will give you a 2:1 profit-to-loss ratio. Depending on your risk appetite the risk reward ratio can be adjusted but should never reflect higher risks being taken compared to the anticipated profits. At the minimum the ratio should be 1:1.

All that will be left to do is repeatedly practice trading until the strategy is engraved in your psyche.
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