Simply put, a forex trading system is defined by a set of technical parameters that will give a trader exact entry and exit points to enter or exit the forex market. Many successful forex traders use such a system because it helps in predicting future price movements of a currency pair. Be aware that no trading system is 100% accurate and will generate losses too but having a system is critical for your long term success as a forex trader.
Without having a system, you are simply gambling setting up for a major failure.
Technical forex trading systems completely rely on technical indicators such as MACD, Moving Averages, RSI, ADX and many others,.. for example, a system could signal a BUY if MACD>0 and ADX>25 or could signal a SELL if MACD<0 and ADX>25.
A successful trading system must produce consistent and profitable trading results.
For example:
Successful trading system: +2%, +2,8%, -1,5%, +4,3%, -1,9%, -0,9%, +2,5%, +1,3%,+0,9%, +3,5%, -2,0%, +2,15%,... (consistent and profitable)
Unsuccessful trading system: +12,5%, -19%, +3,15%, -17,12%, +2,10%, +1,14%, +3,58%, - 14,13%, -5,10%, +1,41%,.. (not profitable)
How does a forex trading system look like?
The above forex trading system consists of 2 moving averages with very simple rules to buy or sell currencies. A buy signal is generated when the short term moving average crosses the long term moving average (MA) from below; a sell signal is generated when the short term MA crosses the long term MA from above. The moving average cross over system is considered a trending system.
Most popular forex trading systems
I. Trending Systems
Trending forex systems are most popular among currency traders and will perform best in trending markets, they are used for day trading, swing trading and long term trading. Popular technical indicators to build trending systems are moving averages, MACD, DMI,..
II. Ranging Systems
Ranging systems will have a good performance record when the market is ranging, the idea behind this type is to sell when the market is overbought and to buy when the market is oversold. Popular technical indicators to build ranging systems are Slow Stochastics, RSI, Oscillators..
Compare trading systems here... |
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