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A later article in this course will show you how to design an initial low-configuration trading system. Once this is achieved, you will then need a method that will allow you to determine its effectiveness. You can do this by calculating its expectancy value by using a statistical batch of at least 50 trades. Expectancy is a statistical measure that becomes more accurate as the number of trades, included in the calculation, increases. How to calculate the expectancy value will be shown in detail later in this course.
This expectancy value will enable you to determine if your trading system is profitable, it will help you to devise the most effective money management strategies and to evaluate the effectiveness of your tweaks and changes to your system’s settings. The expectancy value determines the average amount of profit that can be expected for every $1 risked over the long haul. A negative value implies a loss whilst a positive one predicts a profit. Knowing the expectancy of more than one trading systems allows you to make a quantitative comparison of their historical performances. In fact, calculating its expectancy value is the primary way to measure and then tweak a system for better performance.
You can use the concept of expectancy to evolve your strategy in small steps. Your initial trading strategy will have a performance linked to your own facilities which could be limited to the following:
1. You will probably have very limited experience or training in Forex Trading.
2. Your equipment will most likely be just a standard desktop PC.
3. You will be on your own.
4. You will need to sleep.
5. Your budget will be extremely limited so that you will not be able to
withstand many losses.
6. You will be reliant on expert analysis from professional sources to
inform you of the significance on each new development.
Ideally, you need to evolve your initial trading system so that it can eventually compete with one whose facilities match those of a large Forex Broker who could well possess the following:-
1. A large staff that is both highly experienced and qualified in all
aspects of Forex trading, including Economics and Statistical Mathematics etc.
2. A supercomputer facility that is capable of monitoring multiple
Forex trading pairs concurrently using many statistical tools.
3. They will, no doubt, possess a large library of historical Forex data for each trading pair.
4. They will be able to monitor trades 24 hours a day and respond even to the most violent developments extremely quickly.
5. They will possess large budgets which will enable them to ride the occasional loss.
From the above comparison, you should quickly deduce that initially you are in no position to Forex trade in the same manner as a professional Broker. Expectancy can help you overcome this problem.
This article is part of a course designed to show you how to do this.
| Looking for a brokerage that’s ideal for beginner traders? Read our Plus500 review to see if this experience broker is right for you, or whether the social trading experience at eToro can help you get started. Or, if you need a platform suitable for advanced traders, check out our FXCM review to get the scoop on this top-rated Forex broker. |
