A forex trading system is simply a group of specific rules, or parameters, that determine entry and exit points for your trade. These points, known as signals, are often marked on a chart in real time and will prompt you to pull the trigger.
Here are some of the most common tools used to construct a forex trading system-
Chart Patterns
Moving Averages
Stochastics
Oscillators
Relative Strength
Bollinger Bands
Elliott Wave
Often, two or more of these forms of indicators will be combined in the creation of a rule. For example, the MA crossover system uses two moving average parameters, the long-term and the short-term, to create a rule:
Advantages
So, why might you want to adopt a forex trading system?
It takes all emotion out of forex trading - Emotion is often cited as one of the biggest flaws of individual investors. By cutting down on these human inefficiencies, system traders can increase profits. Apart from going through lot of strategies in this book so that you can construct your own forex trading System, I am also devoting lot of space in psychology of forex trading, without which a trader can simply not succeed.
It can save a lot of time - Once an effective system is developed and optimised, there is little to no effort necessary on the part of the trader. Computers are often used to automate the signal generation.
Developing an effective forex trading system is by no means an easy task. It requires a solid understanding of the many parameters available, the ability to make realistic assumptions, and the time and dedication to develop the system. However, if developed and deployed properly, a forex trading system can yield many advantages. It can increase efficiency, free up-time and, most importantly, increase your profits.
Designing a forex trading System
In our article “The Way to Trade FOREX”, we discuss many of the successful and profitable forex trading strategies that we have made use of from most of the Tools mentioned above. In addition as a follow up service, we help you in devise a forex trading system, and also help you in preparing a Trader’s Plan or assist with your Trader Psychology.
Here are some of the key factors to keep in mind when designing a forex trading system in the FOREX:
The liquidity and the volume in the Forex market is huge, therefore making forex trading systems more accurate and effective.
Most brokers do not charge commissions in this market, only spreads Therefore, it’s much easier to make many transactions without increasing costs. Some brokers offer a very low pip spread.
Compared to the amount of equities or commodities available, the number of currencies to trade is limited. But because of the availability of ‘exotic currency pairs’–that is, currencies from smaller countries–the range is not limited.
The main forex trading systems used in FOREX are those that follow trends (a popular saying in the market is “the trend is your friend”), or systems that buy or sell on breakouts. This is because economic indicators often cause large price movements at one time.
A good quality charting package, I use the eSignal and would highly recommend this package to any readers.
In our long experience of forex trading, we have read many books on forex trading and technical analysis. We have come across very few books, which focus on the importance of forex trading plans and forex trading systems and assisting their readers in creating such a system. This is precisely what this article is aimed at, i.e. assist you in creating your own killer forex trading system, having a forex trading plan, and finally a follow-up service.
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