Forex Trading Sytems

Contrary to what you may believe forex trading systems are not just a set of rules. They include other aspects of trading such as how you enter a trade, how you exit a trade, money management and last but not least, psychology. Goes without saying, effective forex trading systems will give you an edge in the market and ultimately, a profit.

Ideally such a system will give you an edge in the markets such that you are right more than 50% of the time. As you may have seen, there is no shortage of “trading edges” on the internet. But be careful when choosing which one to go for as many are just too complicated, expensive or plainly ineffective.

Successful traders operate with a mindset that allows them to make clear, timely and objective trading decisions. This isn’t something you find in a trading system. This is something you develop across generally a long time of trial and error. However, the specific forex trading strategy has a huge influence on how long it takes you to get that trading mindset.

So what do people mean when referring to forex trading systems?

It generally means a set of strict trading rules (or approaches) that can come in various forms. Some of them use explicit indicators such as moving averages or momentum oscillators. Others use more obscure (and proprietary) indicators, generally in the form of software or “black box” indicators.

Some people argue that there is an inherent flaw in these systems. Many of these systems claims that the traders must follow every single trade signal the system generates, else the profitability of the system will be void. Some go as far as programming all the rules (be it explicit or more obscure) into a piece of software (trading robots) and letting the software do the trades with the broker directly without any human interaction. This invariable (in the good and the bad) eliminates any emotional trading mistakes.

To a large extent I agree with these views. One of the main benefits of forex trading systems is that they are automated and backtested over a number of years. If you believe history repeats itself, then you have a good chance of making a profit. If you start “tweaking” the system you risk eliminating the profitability of the rules and hence reducing your probability of making a profit out of it.

Some of the most popular forex trading systems are nothing else than an optimized version of forex strategies such as range trading, trend trading, scalping and carry trading. Perhaps the more objective one is forex news trading.

One key element all of these systems need to have for you to develop the appropriate mindset is that they need to allow you to control the amount of leverage you are taking, no matter how profitable the system is.

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