Escon deOjo's Forex

By Supreme Complexity

If we take a scalping system that makes a median of 20 pips on a rewarding trade and loses a standard 30 pips on a losing trade, with 80% of its trades being moneymaking and only twenty percent losses, this is the edge for this system:

Edge = (80% x 20 pips) – (20% x 30 pips) = 10 pips

That’d be a profitable system and a really good one to use if you were interested in changing into a scalper. Nevertheless you may find a totally different type of system that had results that were just as good. For instance, you may come across a system that worked the opposite way, with a lot of little losses, say 60 percent losses of 10 pips each time, and then some larger gains, making say 40 pips average profit on successful trades. For this system,

Edge = (40% x 40) – (60% x 10) = 10 pips

So these 2 totally different systems have precisely the same results, and the choice on which was the best foreign exchange trading system for you would be wholly dependent on your trading style. A good way to check this out is usually to operate both systems in a demo account, say for one month each. At the end of the month you could analyze the theoretical results from a back test over the month to see how your own results varied from the back tests. This could be a helpful comparison when picking the best foreign exchange trading system from a bunch of systems that are lucrative in theory.