It will be no surprise to hear that the best forex trading systems are the ones which make money! The difficulty is simply the easiest way to identify which of them those are, and in particular, how to decide which system will be best for an individual trader, i.e. You.
First let’s rule out some systems that never earn cash for anybody, at least not in the long term. These are the sort of systems that gamblers infrequently call loss recovery systems. The idea is if your last trade lost, then your next is more likely to win, so you take a larger position. However this idea is completely wrong. Statistics disprove it every time. So with that rant out of the way, let us take a look at how to identify a profitable system.
Edge is the measure of a system’s returns over a period of time. It’s a simple calculation but you do need a fair number of results to measure it from. Back testing is a good way to get those results. Demo testing is even better as it is nearer to the real situation, but it can take a very long time to collect enough results from demo testing so most people use back tests which are faster.
Edge is simply the probability of a win multiplied by the average profit on a winning trade, minus the probability of a loss multiplied by the average loss on a bad trade.
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