Knowing the Right Forex Trading Systems
Forex trading systems refer to the various strategies that traders use on a consistent basis during trading. They influence traders decisions on when to enter or exit the market, how much to invest and what risks to take. There are also automated forex trading systems that traders can choose to use instead of actively participating in the markets all the time. However, if you plan to be calling your own trades, there are various trading strategies that you will find very useful.
It is not easy picking out one forex trading system as the best for every trader or market. It is up to you as a trader to figure out which system would work best for you depending on how you approach the markets. There are some trading strategies that have been proven to work on a consistent basis. These are the kind of strategies you should be keen on learning and perfecting. Successful forex trading requires consistency to help you achieve long term goals.
Successful forex trading systems
Forex strategies involving technical analysis have been used for a long time by forex traders. Some of the technical aspects analyzed include consolidation breakouts, ascending triangles, head and shoulder patterns, and flag patterns. This approach has been proven to work over decades even though it is now considered to have a lower success rate when compared to other new strategies. New traders also consider it to be dull and old fashioned. However, experienced traders have stuck with this system because the winning trades are usually very large.
Price action forex trading systems are very popular with many traders because of their simplicity and effectiveness. The strategy revolves around monitoring the currency values on the charts. The charts usually display the most current currency values in the market at any time. This system works in both trending and raging markets so you can make money along or against the trend. Price action systems are effective in all market conditions and enable traders to trade on any timeframe.
Harmonic trading systems are quite complex but offer high reward vs. Risk ratios. Fibonacci retracements and extensions are used to calculate turning points in the forex markets based on particular price patterns. This trading system is very versatile and can be very profitable if you are willing to put in time and effort to learn it.
Choosing the best forex trading system
Foreign exchange trading is about making profits so the profitability of the system will be one of your considerations. The profitability of forex trading systems is generally calculated in pips per month, with more pips per month indicating good profitability. The results should be consistent over a long period of time. You should also be very keen on the historical drawdown of the system. The maximum historical drawdown of any forex trading system refers to the largest decline in cash equity that has been witnessed during trading. This can usually be evaluated using a back test or on a live account. The result is expressed in pips or as a percentage of the amount used when testing the system. The drawdown can help you determine how much to invest in a system, in addition to being used to compare different trading systems.
The system’s stability and consistency are also very important if you are to profit from it. If you go for a highly profitable but unstable system, it means you will be getting winning trades occasionally or periodically. It is better to opt for regular, consistent profits that come with a stable system. This will help you grow into a highly successful forex trader.
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