Part I. Dispelling the Forex myth / Chapter 4. Renouncing what has already been achieved

In the previous chapter, it was explained why it is important to have your own mechanical trading system in Forex trading. The emphasis in the last sentence is specifically on the word "own," and this is not accidental. Nowadays, there are many trading systems offered for sale on the internet. For a few hundred dollars, they promise to provide you with a trading system that guarantees monthly profits. Don't fall for the scammers' tricks, remember one simple truth - no one will sell a profitable trading system. That's human psychology. A profitable trading system can generate much greater profits without being sold. Just put yourself in the shoes of someone who has a profitable trading system, and it will become clear to you.

The first thing you need to do to develop a mechanical trading system is to let go of all the technical and fundamental analysis elements you have learned so far. If books on stock trading provided practical advice on achieving consistent profits, then everyone who has read them would be millionaires by now. At this point, you may naturally ask, "Why did we study the chapters of Forex Kindergarten and Forex School?" In those sections, we only shed light on the classical view of market trading and laid the foundation for future trading, but we did not give any impetus for action. We deliberately did not mention this in those sections to avoid rushing ahead and psychologically preparing the reader for upcoming changes in perspectives. So, to understand how to trade correctly, you first need to identify the mistakes that should be avoided.

When developing your own mechanical trading system, it is crucial to understand one simple fact: ALL technical analysis indicators give lagging signals because they are based on price, which is the primary input. Such lagging signals will either result in missed profits or inevitable losses, which are much more likely. This theory can be easily confirmed by building a trading expert based on any of the currently available technical indicators - you will end up with consistent losses.

As for chart patterns in technical analysis (continuation and reversal patterns), the situation is somewhat different. What traders should really pay attention to is the backbone of our world - "History has a tendency to repeat itself." If the majority of traders believe that a pattern formed on the chart will lead to a trend reversal, then it is most likely to happen. If this pattern has repeatedly resulted in trend reversals, the probability of the theory working increases even further. However, it's not that simple - different traders analyze patterns on different timeframes, different chart scales, and so on. Moreover, some traders may spot a pattern on the chart while others do not. As a result, developing an algorithm for pattern recognition on charts is a rather complex engineering task, making it unlikely to be easily automated for the average trader.

So, what should a mechanical trading system include if technical analysis is not very effective and pattern recognition on charts doesn't always produce the desired outcome? In the next chapter, we will continue our discussion on this topic

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