5 Must Have Elements for any Forex Trading System

By Tom Grennell

What are the 5 most important elements in developing a winning forex trading system which uses renko charts? Well first we have to identify how to create a winning forex trading system.We will then apply this information to help us create a winning renko charts forex trading strategy.

A winning trading method should use each of the following five components.

1. Accuracy 2. Reward to Risk Ratio (Reward/Risk) 3. Expectancy 4. Position Size 5. Account Equity

The % of times we win a trade is known as accuracy.Our accuracy is 70% if we place 20 trades and win 14 of them.

The Reward to Risk Ratio compares how much you win per trade compared to how much you lose per trade.

If we risk $50 to make $100, our reward is $100.Our Reward to Risk Ratio is $100/$50 or simply a 2 to 1 Reward/Risk Ratio.

How many times we are able to find a trade to enter equals expectancy. It is simply the opportunity a trading opportunity is available. If you place 12 forex trades per month with your system, your annual expectancy is 144.

But if your system allows you to enter 10 trades per day x 20 trading days per month x 12 months per year then your annual expectancy is 10 x 20 x 12 = 2,400.

How many lots you trade is determined by position sizing. We define our risk by using appropriate lot size and stop losses.The popular method is to risk 1% to 2% equity per trade.

The size of your account or account balance refers to your account equity. The previous 4 elements must take into consideration your account balance. A good forex trading strategy will incorporate all 5 of these important components.

How can we use these five variables to develop a Renko trading system? The following represents my thoughts;

I’m sure you want to win 100% of your forex trades. But let’s be realistic here OK? Too many market participants focus on just this single variable. They continue to search for the “holy grail” system in an effort to improve their accuracy.

For our example let’s just assume we win 6 out of every 10 trades, or 60% accuracy.

In this example, we will use a simple 1 to 1 Reward to Risk Ratio while we develop our Renko trading system. If we risk $40, our winners will be $40.

We will start with a $10,000 account size and risk 2% per trade. We will trade 5 days per week and place 2 trades each day. This is equal to 40 trades per month. Our Account Equity is $10,000 and our Position Size has been defined as 1% risk per trade. Our opportunity, or expectancy to trade, is 40 trades per month.

We can scalp the forex markets with small renko bricks in order to place 2 trades per day.This may take 30 to 60 minutes of your time each day.We can use smaller renko bars such as 5 pip or 10 pip renko bars.

I want to risk 3 to 5 Renko bars to gain 3 to 5 Renko bars. Remember our 1 to 1 Reward to Risk Ratio?

Here is the math:

1% Risk per Trade = 1% x $4,000 Account Equity = $40 Risk Per Trade. The Reward is also $40.

If we risk 2 trades per day x 5 days per week x 4 weeks per month = we have a total of 40 trades. A 80% accuracy x 40 trades produces 32 winning trades and 8 losing trades.

30 winning trades x $200 Reward = $6,000 in winning trades. 10 losing trades is 10 x -$200 or -$2,000 total.

$6,000 + (-2,000) = +4,000.

This is a simple and effective way to incorporate the 5 key elements to any successful forex trading system into a winning renko charts trading strategy.

Tom Grennell is a forex trading system developer. He shares his passion for the forex markets via his detailed writings and recommendations. His favorite ForexRenko Charts FX Trading System can be found at Forex Renko Charts

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Topics: Investing | Comments Off

Tags: Currency Trading, day trading, forex trading, Investing

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