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TASTE OF FOREX TRADING REALITY
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Discretionary traders can greatly benefit from a custom-tailored trading system based on solid rules and criteria that have been back-tested be cause the results can then be rigorously dissected to show the advantages, the disadvantages, and the overall results from a risk/reward basis. Creat ing a methodology that you are comfortable with will increase your confi dence level, thereby eliminating (to some degree) the fear and greed factors. Trading requires strong discipline. With a trading system generat ing the indicator signals that advanced software can provide, you as an individual trader may not get caught up in the disastrous emotional pitfalls generated by fear and greed. By creating the closest thing to a fail-safe trading method using multidimensional confirmation signals based on trading signals from a multilayered sequence of events, you may see fewer trades but higher percentages of wins versus losses and bigger wins than those losses.

The reality is that most professional traders no longer rely on just one element, like a chart pattern or an oscillator signal. A highly effective exe cutable trading signal comes from various confirming criteria, such as higher closing highs, closes above more than one moving average value, and confirmation from an oscillator such as stochastics, as I have covered so far in this book. Also, many systems try to filter buy and sell signals that are within various time frames, such as only taking buy signals when the next longer-term or predominant trend is in a buy mode or uptrend.

The harsh reality is that besides making money, the most important as pect of any system design is not just performance, but the risk exposure compared to the maximum and average drawdowns against peak equity performance and the measurement of risk-adjusted performance, that is, the measurement of expected returns minus the risk-free interest rate divided by the standard deviation of return on the investment. In laymen's terms, a good trading methodology should make money without giving you a myocardial infarction from massive drawdowns and exposure to extreme risk. Once you understand how and why a trade system works and you feel

comfortable with the risk-to-reward parameters, having that information may help you overcome the fears and lack of confidence that plague many novice and experienced traders.

This chapter exposed you to three systems based on pivot points that you can implement immediately in your trading approach. I hope it helps you to expand your interest in this frontier of trading tactics. The next few chapters explain more on the subject of trade setups, risk management techniques, and the psychology of the game

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