A good forex system might well be the golden key in unlocking the secret to consistent profits with currency trading. In this article we’ll unveil answers to some of the most commonly posed questions about setting up a forex trading system.
Forex Trading Systems – FAQs
What Exactly Is A Forex Trading System & What Does It Aim To Achieve? Many inexperienced traders fail to realize quickly enough that organization, preparation and steadfastness are three crucial elements required for currency trading success. Essentially, these traits are precisely what a forex trading system helps the forex trader to adopt. A forex system is a gameplan – one that’s not unlike a strategy used by a championship winning football team. Top flight football clubs such as Manchester United or Barcelona will prepare fluid, in-depth plans detailing everything from formation and marking down to what each player eats in the run up to a game. In much the same way, your forex plan helps prepare you for your own big game against the forex market.
What Specific Things Should Be Included In A Forex Trading System? At the very least, your trading system should clarify the types of trading set ups you’ll be searching for, and how you will time your entry and exit. So, your entry into a trade might be based on a certain combination of chart indicators collaborating to produce a particular signal. For example, you might decide in your trading plan that you’re going to adopt a rather conservative approach to your entry and exits – this may mean you might prefer the use of lagging indicators such as moving average crossovers to identify and enter new trends only after a MA crossover. Were you a more speculative trader, you might well opt to enter on the back of leading indicators such as the RSI or Stochastic. These give a heads up on potential new trend formations far quicker than lagging indicators- unfortunately they are also more prone to false signals. Your forex plan will help provide clarity in judgement in a fast moving and chaotic trading environment. Additionally, your system will need to address the issues of setting stop loss and profit target points. As your market experience expands, you’ll naturally build a system that better caters for your personal trading proclivities.
What Non Technical Points Should A Trading System Include? Your trading strategy must be tightly in sync with your money management and risk control ideologies. This means your system should have a formal policy on how you analyse trading risk against rewards. To do this, you’ll need to consider factors such as position sizing in order to ensure that only a small fraction of your equity is parlayed against any one trade. A good trading system will also require the trader to jot down a mandatory review after every trade, thus creating a journal of your forex trading history. This can prove extremely useful in understanding where you’re making errors, and so in turn will help you fine-tune your forex plan in an incremental way.
A forex trading plan need not be long winded, complex or take much time to construct. It could quite easily be forged onto a single sheet of A4 paper – a truly great investment that will help solidify your forex trading thoughts and actions.