There are a few basic ingredients that should always be present in a successful forex trading strategy. We can emphasize on the importance of a systematic approach, meaning that decisions for entry and exit should be taken based on predefined parameters.
Applying a systematic approach allow us to significantly reduced human-like mistakes. In other words, decisions will be taken with less emotions in the middle.
Definition
“A forex trading system is a method of trading forex that is based on a series of analyses to determine whether to buy or sell a currency pair at a given time. Forex system trading could be based on a set of signals derived from technical analysis charting tools or fundamental news-based events.” (Source: Investopedia)
Types of trading systems
Manual: a manual trading systems offers signs of entry and exit but requires that a trader constantly monitors a chart and indicators in it.
Automated: an automated trading system automatically monitors charts and indicators and according to a series of predetermined parameters, it can buy and sell. When well-programmed, this could turn into a very efficient alternative not only because it reduces human interaction, but also because it increases exposure to opportunities.
Defining Your Own
Now let’s move to the interesting part: defining your own trading system. Of course, if you are too lazy or not experienced enough, you can always use others’ systems to begin with.
Time Frame
Set a time frame that will allow you to trade comfortably while keeping in mind liquidity and volatility levels. For beginners, we recommend trading in the switch between London and New York session, but it will all depend on your prefered pairs.
Identify Trend
Combine technical indicators and define precise parameters that will indicate when to buy or sell. Try them out, see how they perform and improve them with practice.
Risk
Risk management is key for success. Always. So trading system should be based on your risk tolerance. Define it and then adjust the system to it. This will make easier to set position volume and taking decisions about increasing or reducing position sizes.
Repeat
Well, this is pretty clear, isn’t it?
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