Forex Trading - Rules of Thumb 7

Only trade positive expectancy systems

If you have a positive expectancy Forex trading system, the only factors that will decide how much money you will make per year are the number of trades the system actually makes, how much capital you allocate to the system, and how accurately you use the trading signals.

If you do not know whether your trading system is positive expectancy then it makes no sense for you to be trading it in the first place. Expectancy is calculated using the profit or loss on each trade; divided by the initial risk, and then taking the average of this number of a series of trades. Systems that have positive expectancy will make money most of the time and those with negative expectancy will lose money.

Successful traders only trade systems when the odds of success are in their favor so that they know that making money is the final result of accurately implementing the system and not just pure luck.

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