The Importance of Forex Trading Systems

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Clearly nothing is more important Forex trading than having a profitable Forex trading system.

All a Forex trading system does is tell you when to get into a trade and when to get out of the trade. Often times you hear trading systems referred to as “mechanical trading systems”. You will also hear them referred to as Forex robots or Forex expert advisors. They are referred to as robots because of the mechanical, unemotional way in which they work.

Technical analysis is the basis for most all trading systems. Naturally the metrics of fundamental analysis can also be numerically quantified and can be analyzed using mathematical methods.

There’s so much software available now that allows traders to analyze the markets as well as to create their own trading systems. Forex brokers now have platforms that integrate well with trading system development software, making it even easier for those traders who wish to completely automate their trading system efforts.

So how does one get hold of a trading system? There are several routes you can go, you can either buy an already created trading system from someone else, or you can create your own. Obviously, buying a trading system would seem like the easiest choice, especially for beginner. That’s partially true, because creating trading systems does require a certain level of skill. Let’s phrase it another way, creating trading systems that work requires a certain level of skill. In reality, anyone can throw together a trading system and hope for the best. Alarmingly, this is what far too many beginning traders actually put into practice.

There are a number of reasons why you should use a trading system in order to be successful in Forex. The first one is obvious because a good trading system will actually make you money over the long term. Since the trading system is mechanical and unemotional in nature it definitely helps traders not second-guess themselves, especially when in the heat of trading. By removing the guess work and the emotional component trading systems are able to assist a trader and maintaining their trading discipline.

Whether you choose to purchase commercially available trading system or to build your own from scratch you’ll need to know how to evaluate trading systems. If you don’t know how to evaluate trading system how can you tell if it is likely to work well into the future. The truth is that nobody can predict the future and that even real time, real money, track records are still merely footprints. This is why you’ll see the disclaimer, “past results are no guarantee of future performance”.

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Selecting The Best Forex Trading Strategies To Meet Your Goals

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As the popularity of Forex trading has grown, the number of strategies has also multiplied. Simply defined, a Forex trading strategy is the plan designed to allow a trader to successfully participate and make a profit in the Forex market. Most trading strategies take the form of a software package that will either signal a trader when they should make a particular trade, or in some cases automatically complete the trade for the trader.

For those not willing to spend the time to create their own strategies there are alternatives. It is possible to purchase or lease a strategy, but a trader should learn the basics of evaluating a strategy before acquiring one. The following key evaluation points will serve as a guide:

Price: It is very important to know if the program has a minimum account balance. Some programs will only function if you start with a minimum balance as high as $10,000. If this is above the money you are willing to trade, it would be best to choose a different strategy. If the price is not clearly listed, it would be best to choose another strategy.

Account Risk per Trade: How much of your total account are you risking per trade? The higher the percentage of the account risk per trade, the easier a loss can cause you to be taken out of the game.

Total Net Profit: Total net profit is the sum of all trades completed during a certain time period. It is important that transaction costs be factored into this figure or the data will be misleading. Transaction costs can be high, so make sure all figures you look at have the transaction costs figured into them.

Percentage of Winning Trades: This evaluation measurement is frequently misunderstood. Many users assume they must have a have a high percentage of winning trades in order to have a profitable Forex strategy, however this is not the case. In fact, often Forex strategies advertising percentages between 95% and 100% are set that way to lure those with limited experience in Forex trading that don’t understand that such a strategy would be unsustainable.

Although strategies with high percentages of winning trades look good at first glance, usually these strategies have risked a lot and gained little. Most experienced traders would advise new traders to steer clear of these strategies.

These simple evaluation methods will allow you to pick the Forex trading strategy that is right for you. Remember to keep these in mind as you search for you Forex trading strategy, and don’t allow yourself to be taken in by scams. If it looks to good to be true, it probably is. Once you find a strategy you believe fits your needs, test it out with a free Forex demo account before risking real funds. If you are pleased with the results of the free demo count, then you can use the strategy to begin trading with your real account.

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How To Choose the Best Forex Trading Strategies

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There are so many forex trading strategies available that it can be overwhelming for a new trader.  Making your way through all the free information, high priced courses, blogs, and brokerage courses is a big task.  These tips will help you choose ones that work for your situation.

As an example, some traders use strategies to trade the news. Helpful  forex economic calendars online show which countries are scheduled for announcements on a given day.  When interest rate changes are announced in the U.S., these traders are ready to make the most of it.  With dramatic news, there will be a sudden spike up or down with the U.S. dollar pairs.  Day traders and scalpers like these scenarios, but it is essential to watch your trade.  Other traders advise you to sit by until the market settles after one of these events.  They would rather be out of the market than to suffer a big loss.  Trading the news can be lucrative, if you know what you are doing.  Understanding this scenario that occurs regularly in the foreign currency exchange market will keep you ever alert to protect your deposit.

New traders are often enticed by forex trading strategies that offer software with signals.  You are promised that if you buy when the arrow points up and sell when it points down, you will get rich.  This is not to say there are no good software programs available.  But it is important to note that you need a backdrop of knowledge about the market for them to work for you.

As an example, many programs that get a new trader so excited, fail to teach the value of always knowing 3 things. The trend of a pair, support and resistance, and the average daily move of a pair are all needed to begin evaluating a trade.  Such knowledge will keep you from pulling the trigger on a buy trade when the arrow shows up if resistance has been touched and the overall trend is down.  If the pair has already moved its daily average, there is probably not much left for you.  Of course, these are general guidelines, and sometimes the price will plunge on up despite all the conventional wisdom.  However, with a good forex trading strategy that follows these suggestions, you will be in profit far more often than if you ignore them.

It is better to start with simple strategies that employ only 2 or 3 easy to understand indicators.  Use them in a demo account with a major pair like the GBP/USD or EUR/USD.  Stick to one pair for awhile until you are familiar with it.  Despite the promises that a forex trading strategy will work on all pairs, it is far better to learn the idiosyncrasies of one before you move on to another.

Another claim often made in a strategy is that you can use it anytime at all.  Except for a very few strategies, this is utter nonsense.  High volume is necessary for successful trading.  You must trade when the markets are going at full steam.  The best methods fail when there is very little trading going on.  Think about your lifestyle in relation to times the markets are open as you evaluate various trading strategies.  If you live on the U.S. West Coast, getting up at 5 am to catch the overlap of the London and U.S. markets, may not be something you want to do.  On the other hand, in Europe, it may be easy to trade the London open, which is the most exciting, high volume market in existence.

You can do well in foreign currency trading by using good forex trading strategies.  This underlying knowledge will help you make good choices on your road to consistent profits.

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An Overview Of Forex Trading Strategies

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Trading strategies are crucial to being a successful Forex trader. There are a variety of strategies one can take, however, so it can be difficult to craft your own unique style. Most traders prefer either a technical or fundamental analysis approach and often fail to consider a combination of both strategies.

Finding a way in which to incorporate aspects of both approaches may allow the trader to gain a better overview of the larger financial market. Technical analysis relies mostly on the concept that trends will usually foreshadow the market’s future prices. A common saying used in the approach states: “The trend is your friend”. Patterns that have been identified in market movements combined with a strong understanding of these trends considered over a long period of time lend way to a good trading strategy. Analytical tools also allow traders to better understand these market movements. These tools should be utilized in order to increase knowledge about the applications and strategy concepts. One of the best ways to do so is to consider each tool individually.

Adequate knowledge of one analysis tool will allow the trader to better understand the ways in which analysis tools may work together and reinforce trading strategies. Forex trading strategies consistently consider the “support” of the market. The “support” is the bottom price level from which prices have a tendency to rise. “Resistance” is another frequently considered aspect of the market. “Resistance” is the upper end level that the currency pair rarely oversteps.

These levels reflect the limitations of price movements over a period of time. As prices break through the established support or resistance levels, it is widely accepted in the industry that the prices can be expected to continue on that path. For example, if the price were to drop below the delineated support level, the market will likely view the level as bearish and prices will continue to drop. In order to identify reliable support and resistance levels, price charts will prove to be extremely useful. Charts can undergo analysis in any specified time frame, but longer time frames can establish more dependable support and resistance levels.

Longer time frames may be either weeks or months. Accurate support and resistance level data is vital to understanding the appropriate time to enter or exit certain transactions. Another analysis tool commonly used in Forex trading is the SMA, or simple moving average. The SMA is utilized in order to determine the likelihood of a fall or rise in prices. Similarly to the support and resistance levels, if a price crosses over the SMA, it is likely to continue in that same direction. A diverse use of trading technical analysis tools can prove beneficial in Forex trading strategies.

Fundamental analysis and technical findings can coexist in order to better your trading activity. One type of analysis can add support to the findings of another and vice versa. The ideal trading situation would consider a variety of factors for success. The trader must understand when to enter as well as exit the trade. He or she must also be aware of the signs of market changes and how much you can afford to lose if the trade were to work against you. Learning the way in which to utilize analytical tools will aid in making your trading future both long and profitable.

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The Scientific Way to Trade Forex

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For those looking for the scientific way to trade Forex I got some good news for you. In order to be scientific about the way you trade Forex you’ll need to have rules and be consistent about following those rules. Let’s begin our exploration.

You trade Forex scientifically you’ll first need to research Forex scientifically. The first part of this process is that we must observe the Forex market and then we must create a hypothesis based upon our observations. Don’t worry, a hypothesis isn’t anything complex is simply a proposed explanation for some observable phenomenon. Let’s say for instance that you have observed a certain pattern when looking at the daily chart of a particular currency pair. In your observations you noticed that when this pattern occurs the currency pair moves upward in value relatively frequently.

Your hypothesis in this case is that when “X”pattern occurs then the market moves upward. You now have a hypothesis on which to base your research. From here you would continue to observe the pattern and seek to find what percentage of the time the market does move upward and by how much.

At this stage if it is discovered that you can buy this market based upon your newfound pattern then you may have the basis of a profitable Forex trading system. As you can see the scientific way to trade Forex can aid you in your research as well as move you closer to finding a consistently profitable Forex trading method.

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Free Forex Range Trading Systems

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Free Forex range trading systems should not be very difficult to come by. First let’s start off with a few different strategies used to trade ranges.

The first range trading system would be trading using support and resistance. This could also quite easily be done by defining a range using a channel. A channel is simply a set of 2 horizontal lines drawn on your chart. The top part of the channel is created using the highest high of the last X number of periods where X can be any whole number. The bottom part of the channel is created using the lowest low of the last X number of periods. For example on a daily Forex chart a 10-day channel can be created by drawing the top part of the channel using the highest high of the last 10 days. For the bottom part of the channel we simply use the lowest low of the last 10 days.

To trade using these channels we would sell when the price of our chosen currency pair reaches the top part of our channel and we would buy when the price reaches the lower part of our channel. In this type of range trading system we are actually countertrend trading because we are selling when themarket is moving upward and buying when the market is moving downward.

A better way to range trade in the above scenario might be to let the price move above the upper level and then sell if and when the price moves back down into the channel’s range. The reverse would be true of initiating a buy trade. This strategy has built in confirmation that the market is indeed moving in the direction that we wish to trade in.

Although many may not consider a channel breatout trade to be a range trade in reality it is. This is because the trade is taken in the direction that the price “breaks” through the upper or lower level of the channel. This is an extremely effective method of trading.

So we have covered a few examples of a few free Forex range trading systems. You can easily experiment with these using your own Forex charting software to create range trading systems that fit you to a tee.

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How to Trade Forex

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Learning how to trade Forex is not nearly as difficult as you might think. You may have heard mention that Forex trading can be simple, but not easy. What this simply means is that you can trade Forex profitably using simple strategies. Forex trading is not easy for some because of a number of factors such as impatience, lack of discipline, etc.

If we really break it down and look at it on its most basic level here are the necessary components for successful Forex trading:

A Forex trading plan — running any business without a business plan is like trying to fall upward, it just doesn’t work. Doesn’t it make sense that if you plan to be successful then you increase your chances of becoming successful?

A Forex trading system, strategy, or method — your set of rules for how to trade Forex will be included as an integral part of your Forex trading plan.

A Forex broker — finding a good broker is important. Make certain that you get a broker who offers telephone support as this can be an important backup for your online trading.

Adequate working capital — you’ll need to have adequate working capital in order to be a profitable Forex trader for the long term. Many beginning traders make the mistake of believing that may actually limit their risk by minimally funding their accounts. Your account should be funded based upon the parameters of your Forex trading system, especially your trading systems maximum drawdown.

Risk control — there is no one who exercises sloppy risk control who trades Forex for very long. By exercising good risk control you keep yourself in the game and therefore give yourself many future opportunities to profit.

Money management — the term money management is often times used interchangeably with risk control when in reality they are not necessarily the same thing. When I speak of money management I speak of maximizing your return on your equity. This involves trading an increasing number of contracts as your account equity grows. Ideally, what you want to experience is exponential growth in your account equity.

Patience and discipline — trading becomes challenging when things don’t go as planned. A long string of losing trades can take its mental toll on even the most experienced trader. For this reason it is especially important to have your mental house in order and understand that having losing trades is simply a very natural part of trading Forex.

We just covered some of the basics of how to trade Forex. More importantly, we’ve covered a number of things to help prepare you to trade Forex successfully. Make certain that as you continue on your trading journey that you don’t take any shortcuts and to learn to trade Forex properly to have the best possible trading experience.

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