How to choose the best Forex Trading System
Successful Forex trading requires the use of a profitable Forex Trading System. A system that will ensure that you make profits.
What is a Forex Trading system?
A Forex trading system also referred to as Forex System trading is a way/method of trading which is usually based on a comprehensive analysis of the markets to determine the best entry and exit levels.
Mainly, the trading systems are based on signals produced by technical analysis tools like indicators or fundamental analysis.
The main idea behind the trading systems is to provide a guidance on when to enter a trade and when to exit the trade so as to get the maximum profit possible from any traded position.
Types of Forex Trading Systems
There are grouped into two; the Manual Forex trading systems and the Automated Forex Trading Systems. The main difference between the two is the way the actual trade are placed.
Manual Forex Trading Systems
Manual Trading Systems comprises of laid out principles of trading which a trader uses in identifying the best time to place a buy or sell order and also when to exit the trades. In the process, the trader may use Forex indicators, which provide trade signals alerting the trader that it is time to place a trade. However, the trader has to analyse the provided signals by either comparing them over different time frames so as to determine whether to place a buy or sell order.
The success of trading will mainly depend on the accuracy of the trader to interpret the signals provided. The trader will therefore require to understand how the system operates so as to know which signal represents a sell order entry point and which represents a buy order entry as well as their respective exit signals.
Advantages of manual Forex Trading Systems
The main advantage with manual trading systems is that the trader has the ability to control the leverage. There is a human judgement aspect which helps in gauging the market and also controlling the risk of applying too much leverage.
It also gives the trader a chance of improving his/her market analysis skills since they are always in front of the computer figuring out why a certain signal was provided.
Disadvantages of manual Forex Trading Systems
With manual trading systems, the trader is required to always stay in front of the computer in order to react to every signal provided without missing an opportunity. Therefore, manual trading systems are not convenient for traders who are too busy to sit in front of their computers.
Also, since it depends on the efficiency of the trader's interpretation of the signals, any errors made in the process leads to losses.
Anytime that the trader is not in front of the computer means a chance wasted since a signal may have been provided but the trader was not round to place an order.
Automated Forex Trading Systems
On the other hand, automated Forex Trading Systems are computer programs which are configured to analyze the fx market and determine when to place and exit trades on behalf of the trader. They are commonly referred to as expert advisors (EA).
A trader can choose to freely download these systems, purchase or even program for themselves.
If you decide to purchase one, ensure that you do a thorough research about the system and where possible enquire from traders who have used the EA before. Reviews from the sales pages are also helpful source of information.
Also, before using any automated Forex Trading System, you should test it on a demo account first. Don’t trust the word of the seller too much; some are scams just after your hard earned money.
There are several programming languages like MQL4, MWL5, Python, etc, that can be used to program expert adviser. However, you should ensure that you learn how to program using the language of your choice first before attempting to program any trading system. Also, you should have a very deep knowledge of the fx market.
Advantages of using automated trading systems
With automated trading systems, there are no emotions involved in making decisions. The program analyses the market and executes trades without the input of the trader. This help in eliminating stress and other things like greed which result from emotions.
The automated trading system can easily be tested even without first being used. Automated trading systems are backtested, which is applying the trading rules of the system on historical market data, so that the trader can see how the system works. If the system proves to work on the backtest, then the trader can go ahead and use it.
It doesn’t require the trader to stay in front of the computer all day. This gives traders with tight schedules a chance to invest in Forex Markets.
Disadvantages of automated Forex Trading Systems
The Automated Forex trading systems still require monitoring to ensure that the system doesn’t apply too much leverage. Also, the system may crash leaving opened trades unclosed.
Most can be entirely left to trade independently especially during financial news releases since the markets are usually quite volatile and the system may end up making huge losses. The systems are normally disabled during such times.
Just as it is said that one man’s poison is another man’s meat, there is no trading system that is perfect for all fx traders. Every Forex trader has his/her specifications they would like to see in a trading system.
However, since automated Forex Trading Systems require less experience, they are best for Forex beginners as compared to the manual Forex Trading Systems which require a lot of Market analysis.
Trader should ensure that they clearly understand how a Forex trading system works, the currency pairs it is suited for and the best trading time to use it.