What is a "Trading System"?

Every once in a while you may check your trade log to see what trades were made on your account. You may ask yourself, why and how the decision to take that trade was made. Allow me to give you a little insight into the process behind every trade.

First, I would encourage you to read Investopedia's definition of a trading system.

Every trade our system signals has a reason for entry and a strategy to get out. Whether the trade made money or lost, whether the trade lasted 24 hours or 24 seconds, every trade is taken with a purpose in mind and is based off of precise entry signals. Every trade taken has a set stop-loss (absolute risk) and take-profit (profit goal). The trader's sole responsibility is to see that the system's rules are carried out precisely as called for in the plan. And thus, with confidence, we can "Plan the Trade and Trade the Plan" without emotion or fear. No system wins everyday. No system can guarantee consistent daily returns through all market conditions. The famous "Turtles' " system lost more often than it won but still managed to make over 80% per year.

Drawdown. The bad word in Forex. For those unfamiliar with typical Forex drawdown I would invite you to Google "Typical Forex Drawdown" to get a feel for what other Forex systems are experiencing. You will see anywhere from 5% - 65% all depending on the potential return. Obviously a system that only experiences drawdown of 5-10% will not make more than a couple percent per month while a system that risks 50+ percent will have the potential for equal monthly gains. In creating our system we looked to be somewhere in the middle between high Forex returns and high Forex risk. Keep in mind that compared to many investments any Forex risk is a high-risk.

WHY USE AN AUTOTRADER? We use an autotrader for the same reason every commercial plane these days uses auto pilot, because humans are prone to make errors in the heat of the moment. Trading is a highly stressful endeavor. Every trade involves complex formulas for determining when to enter, what position size to enter with, and how to exit the market. Without the computer we could not execute the system rules exactly according to plan. However, as with commercial flight, our pilot (the Echo FX Trading Team) is always at the wheeling monitoring the auto trader, watching the market, studying the fundamental news and making adjustments to the strategies as is necessary.


No Trade Days. You will see that often one or all of the Strategies' rules signal a no trade for that day. This is normal. We have calculated when a day is a much higher risk for loss. In some cases, we take half risk that day, in other cases we don't trade. For instance, we often avoid trading bank holidays or when the end of the month falls on a Monday or Friday. We tend to not trade (unless market conditions warrant it) around the time major news is coming out, and we never trade the non-farm payroll report (typically the first Friday of each month).