Custom Search

Saturday, April 10, 2010

A Forex Currency Trading System

It's not impossible to make money on the forex markets. There are in fact many people making a full-time living doing so, and many others making good money part-time. The reason why so many novice traders fail at the game is because they storm in and start trading without having a forex currency trading system.

Why on earth should you be a rigid trader and have a trading system? Would you get onto an airplane that had no flight plan? One that was just going to take off and fly across the ocean with no apparent destination until it runs out of fuel? That is more or less what you do when you start trading with real money and no trading system.

A trading system is a set of methods and rules that guide your trading activities. They help you to keep your head clear when things start to go wrong. Without such rules, you are bound to hang on to losing trades too long or get out of winning trades long before you should, thereby robbing you of most of your profits.

The most important tool in your trading toolkit is no doubt your trading software. A newbie trader might not need a highly sophisticated commercial package that can display all possible technical indicators at the same time. There are indeed quite good free software packages that can be downloaded from the Internet. Once your needs get more advanced, you can upgrade to the paid version. Whatever you choose, make sure it can display multiple time frames (e. G. Minutely and hourly charts) and all the most important technical indicators like moving averages, the RSI and the MACD.

Now you have to set up your trading rules. To keep it simple, let's say you decide that you want to enter into a trade when both the moving average and the RSI agree that a price hike in imminent. That means you have to set up your trading software to display these indicators in more than one time frame. If you use minutely and hourly charts, both of them should agree that now is a good time to enter a trade.

In the same way you should set up rules to guide your exit from trades. More traders lose money because of bad exits than because of bad entries. If you set up a stop loss the moment you enter into any trade, you will never hang on to losing trades too long. A 'take profit' level can similarly help you to stay in a winning trade until it has run its full course.

Money management should form part and parcel of any forex currency trading system. There should be rules to limit the number of open trades you have at any given moment in time, the maximum risk per trade and how many trades you do per day.

By Bob Sherman

About the author: Did you know that managed forex trading is considered the best investment strategy for the future? We've got the comprehensive inside information on currency trading for dummies.


Post a Comment


Custom Search