Forex Trading System - How To Create The Best?

by : Peter Johnson

A forex trading system, is essentially a plan which if you adhere to will more than likely result in greater profits than losses by eliminating risk as much as possible. There is essentially no magic formula in investment which will guarantee profits continuously, however the risk element can certainly be taken out of the equation through the assistance of a forex trading system.

There are 3 basic elements of a strong forex trading system:

1 Select Your Term:

There are basically 3 main time frames which one deals with holding currency in forex trading. These are long term, medium term, and short term. Each has its distinct advantages and disadvantages.

The long term trader will hold on to his currency for months or even years. The short term position holder, sometimes known as a scalper, will be making quick fire trades often exchanging currencies back and forth within a single day. The medium term trader normally holds his positions for a few days or a week. The outstanding value of the medium term option is that it requires the least amount of capital to realize the most profit. Leverage is only needed to boost that profit, whereas in both long and short term trading, it is needed to both guarantee the chance of profit and protect the investment. For this reason the medium term option is normally recommended for beginner traders. However, it is best to fully assess your financial position and goals before deciding on your trading term and creating your forex trading system.

2 Be Analytical:

One needs to be highly analytical when dealing with the forex market, and having a firm hold on technical statistics is crucial in devising your forex trading system. Following trends, and analyzing them correctly can assist in making the most profitable decisions on the forex trading market. This analysis involves monitoring price fluctuations and understanding key indicators which suggest a market change. There are various forex trading software and programs which will interpret this data, and help you base educated decision on the results. You need to find the right way to interpret and manage the data efficiently in your forex trading system.

3 Time Your Trade To Perfection:

One of the qualities of the best forex traders, is the ability to insulate themselves from massive market swings. This is due to the 24 hour nature of the stock market- its always trading except for weekends. The best forex trading system will include "stop loss" and "take profit" orders. Theses are essentially basic decisions to change your currency when your profit or loss reaches a certain point. The "stop loss" order is perhaps easier to understand- get out before you lose big time. The "take profit" is a conservative approach to a market upswing, resulting in profit, but not risking a volatile shift which could result in either more profit or sudden loss. As the market is so volatile, and you won’t be actively monitoring every second of every day, it will be comforting to know you will be profiting when there is opportunity to do so.

One of the biggest advantages of forex trading software is the ability to create a demo account, which essentially allows you to play the market without investing any of your own money. You are given virtual money, and you can monitor the success of your forex trading system. Once you are happy with your demo account, you can apply your successful forex trading system to the market place.