Forex is a popular, profitable platform for transactions for the sale of any currency, assets. Buying and selling money in various currencies is a good opportunity to start your own profitable business, provide yourself with a decent standard of living, and become the owner of solid capital.
As in any other business, for such transactions, it is important to understand the basic principles of the currency market, the main rules for participation in transactions, the main risks, and established rules on the service.
What is a Forex Trading System? This is a complete strategy, an algorithm that a trader trades in order to make a profit. In this algorithm, ideally, there is a clear structuring and specifics: when a position is opened, by what lot, what size of stop orders, when the deal is closed, etc. The trader can only understand and remember this algorithm of actions, applying it in practice. It is also highly desirable to be aware of what needs to be done and why. In other words, you need to understand why we open to buy at a certain indicator signal. Of course, there are simple Forex trading systems that do not provide a complete understanding of the definition of signals (up arrow – buy, down arrow – sell), but if a trader understands the reasons for his actions in the market, the reasons, who move the price – such a trader has a huge advantage over other traders. Trading with price action patterns is a good example.
Forex trading systems
The trading system is a set of specific algorithms, instructions, and actions of a trader, based on the technical analysis performed. Each trading system clearly defines entry/exit conditions, time intervals, money management, and risk management. Trading systems allow you to limit the factor of emotional influence on decision-making, as well as give trading a certain consistency.
This section presents the most popular forex trading systems. In our opinion, they can become fundamental in the development of your own, unique trading systems.
Many traders diversify risks and increase profits by using several different types of trading systems at the same time.
To date, more than 1000 different trading systems have been created, some of which formed the basis of many mechanical forex trading systems.
All forex strategies can be divided into separate groups focused on the style of trading. For these groups, each trader can choose the trading strategy with which he will be compatible psychologically and stylistically. Forex trading strategies can be conventionally divided into:
1) The most common group among trading systems in the forex market is the trend. Such Forex strategies are guided by upward or downward trends, tracing the stability of the trend and their duration. A striking example of such strategies will be strategies that are based on moving averages.
2) The second group of trading strategies includes strategies based on the assumption that the price moves in a corridor or in a price channel limited by support and resistance levels. Such a group is called flat. As an example, strategies based on oscillators with support and resistance levels.
3) A group of counter-trend trading systems. The algorithm of work is to determine the trend reversal point. By identifying the correct pivot point, you can get the most profit. True, such strategies are not without their drawbacks, they give a large number of false signals. The use of the Alligator indicator and Bollinger Bands are the main signs of the system belonging to a counter-trend group.
4) A group of trading strategies based on trading by Fibonacci levels. These trading strategies combine the features of trend trading, loss and wave theory. On the basis of the Fibonacci number sequence, special levels are built, the price, bouncing off these levels, creates corrections from the trend. Strategies with the Fibonacci indicator are an example of the profitable forex trading strategies of this group.
5) The next group of trading systems is based on volatility breakout. What does it mean? The price that exits the established range is significant. The price has every chance of developing a trend. A striking example of this group is strategies based on the Dochitan channel or Kellner channel.
6) Forex trading strategies are very popular, which include technical analysis, and are based on the figures of technical analysis – patterns. The so-called pattern group of trading systems. Well-known patterns: “head and shoulders”, “two tops”.
7) A group of trading systems based on session trading. These are trading systems that trade during the selected trading session using those currency pairs that actively manifest themselves during these sessions.
8) Trading strategies scalping – the main principle of scalping trading systems is intraday trading with small take-profit levels and a relatively large amount of stop-loss.
9) A group of trading systems based on wave analysis. The Elliott Wave Analysis theory assumes that the market movement primarily depends on the psychology of the participants and the characteristic impulsiveness of the movement.
10) Combined trading systems, or else, they are also called universal. This is a group of the most reliable trading systems since the main principle is to compile various trading systems into one, then it is thoroughly tested, and only then is it applied in trading.
Trading systems are chosen by traders depending on their own experience and knowledge, market situation, and psychological compatibility with the trading system.
There are profitable forex trading strategies in every group. Also, any such strategy can form the basis of algorithmic trading.