What is a Trading System?
A trading system is a collection of particular parameters and rules which determine the entry and the exit points for a specified equity. These points are properly known as the signals, which are commonly marked in the chart in actual time and also prompt the sudden execution of a specific trade.
There are a few frequently-used technical analysis tools (often called Forex indicators) used to build the parameters of the Forex trading systems many traders use, which are as follows:
• Bollinger Brands
• Relative Strength
• Oscillators
• Stochastic
• Moving averages
Advantages of a Trading System
1. It takes all emotion out of trading – The primary enemy of the investor is trading based on emotions. Emotional investors are not able to cope up with their losses and profits, and either stay in a trade too long “waiting for the prices to return to where they should be” or take profits too early. Either way, losses can be large and profits small. If you strictly follow the designated rules of your stock trading systems or Forex trading system, then you are able to let the systems determine your entries and exits and remove the emotional factor from the trading. Trading systems, if followed exactly, will eliminate the inefficiencies of emotional trading.
2. It can save a lot of time – You just have to develop and optimize an efficient trading systems Forex , then put them on auto-pilot to identify your profitable trades. Computers are commonly used to automatically load the signal generation, but they also automate the actual investment as they can automatically place buy and sell orders. Therefore, the trader doesn’t have to as closely analyze all the conditions prior or to trade, or even manually make the trades.
3. It’s easy if you let others do it for you – There are some companies which sell the trading systems that they have designed. Other companies will provide you only the signals generated on the basis of monthly fee. Of course, with any area of making money, there are fraudulent companies in the industry, so research before hiring a signal service provider. Always scrutinize all the services they claim. You should try free trial offers from several companies using their day trading systems or futures trading systems. Also, there are automated trading systems, also called “robots,” that allow you to buy and sell currencies using the software to place your real-time orders. A couple of popular automated Forex trading systems robots include FapTurbo and Megadroid.
Disadvantages of Trading Systems
• Trading systems are sometimes very complex – The biggest drawback of trading systems is that they are sometimes truly complex in nature. As a novice trader, trading systems require solid knowledge of the technical analysis tools and an understanding how all parameters and indicators work. There is a learning curve that may takes days, weeks or months, but it critical to full understand the system before trading with it using actual money. “BabyPips” is a good website to get basic training in many of the most popular trading indicators that can be added to stock and currency charts, and there are several good trading forums such as “Forex-TSD” and “ForexPeaceArmy” that discuss trading systems.
• Testing the system can be a time-consuming task – The best method for learning how to trade is to paper trade first without an automated system, and this will allow you to understand price movement fundamentals. Paper trading is just writing down your entries and exits on paper, and not actually making the trades. Also, most stock and Forex brokers allow you to setup “demo” trading accounts to even test automated trading systems using “virtual money” without incurring any risk. You need a lot of time in developing and running the trading systems.
Conclusion – What is the Best System?
It is not difficult to develop a trading system whether the systems are Forex trading systems, index trading systems, swing trading systems, stock trading systems, etc. You just need to develop strong knowledge of all the parameters and rules, visit the trading forums to ask questions and see how others are trading, and practice using a simulated trading account. Be sure to download free or purchase commercial Forex and stock trading software and test it thoroughly.
The best system to use is:
1. Use Forex simulated trading first before risking real money in a Forex investment.
2. Understand your trading system thoroughly, the percentage of wins and losses it generates, and then follow the system exactly. A Forex trading system is not the same as the Forex trading platform. Your system is based on the time frame and price charts you prefer to trade with (1-minute, 15-minute, 30-minutes, 1-Hour, 4-Hour, Daily, Weekly, Monthly) the Forex indicators that provide you with the best information on when to place a trade, and your Forex trading strategies. A Forex trading platform is the software provided by your Forex broker that provides you the price charts that you will use, has a wide range of Forex indicators to choose from, has tools to draw support and resistance and trend lines on your price charts, provides an ability to enter trades using stop loss and other types of orders, and just provides the interface to make demo or live trades when your Forex trading system provides the buy or sell signal according to your set parameters.
3. Never trade using your emotions. Again, trust and follow your trading system exactly.
4. Practice money management. Never risk more than 1% of your capital on any one trade; never have more than 10% of your capital at risk at any time with all your trades.
5. Never trade during major currency news events (search online and you can find many sites that provide dates and times for Forex news).
6. Do trade during regularly high-volume trading times, such as when the Tokyo and London exchanges are both open, and when London and New York exchanges are both open (however, lunch time is usually not a good time to trade).
7. Mondays and Fridays are poor trading days due to low trade volume. Usually it is best not to hold trades over the weekend as you will incur swap fee charges.
8. Understand your Forex trading platform provided free by your broker. Not all trading platforms are equal, just as not all Forex brokers are equal. MetaTrader is a very flexible trading platform that is used by many Forex brokerage companies, and reputable brokers include ACM Forex (AC Markets), Dukascopy, MB Trading and others. Check to see what institutions regulate each broker and how much capital they have to fund their company (different regulating organizations require different amounts of capital reserves).