Forex Trading Systems

Submitted by: Forex4Dummies

It's important to use a system when doing any Forex trading, and there are a lot of effective Forex trading systems out there. But no one Forex trading system works for everybody. Why? Because every trader has his or her own way of working, his or her own level of self-discipline, and his or her own goals.

Famous Trading Systems

Fibonacci Numbers and Gann Numbers. There are several famous theories that many successful traders incorporate into their trading systems. The most popular is probably Fibonacci Numbers, which is used to indicate resistance and support levels. Named for the Italian mathematician, this theory revolves around the idea of mathematical proportions. In the Forex market, changes in the market that follow an oscillatory pattern tend to follow Fibonacci ratios. Gann Numbers are very similar, but emphasize the importance of the half-way point between two extremes.

Elliot Wave Theory. The Elliot Wave theory speculates that, by observing repetitive patterns and waves within the market, the movement of any financial market can be predicted.

Commercial Forex Trading Systems

There are countless people on the internet who claim to have the perfect system for making money on the Forex market. They make outrageous claims and give lots of "evidence" that their clients have made incredible profits with their system. All you need to do to make a fortune on Forex? Just send the creator $2,500.

You probably think that we're about to say that all of these systems are a scam. Well, we're not! because they're not. And while some people out there do sell useless "trading systems" just to swindle hopeful traders, many commercial trading systems are legitimate, and following one can be a good way to make a profit on the Forex market.

But, yes, there is a problem with commercial Forex trading systems. And that problem, much of the time, is you. Many traders who purchase these systems don't have the discipline to follow them. At just the wrong moment, they get greedy or worse, get scared and back out instead of following the rules set by the system.

Creating a Trading System

There are several good reasons to come up with your own trading system instead of shelling out $2,500 for one dreamed up by somebody else. For one, it's free. For another, it's yours and you trust it. If you've spent the time to research the different methods to determine trend indicators, etc., the chances are higher that you will trust those methods when the time comes. If the system is yours and you know the ins and outs of how it works, your chances of sticking to it are greater. As are your chances of making money.

What goes into your own trading system? Put simply, it's this:

1. Using indicators to identify a trend
2. Confirming that trend
3. Determining how much you're willing to lose
4. Setting entrance and exit guidelines
5. Testing your system extensively
6. Writing down your rules and following them to the letter

See that last one in italics? It's the most important. Because no matter what kind of system you use --a free one you find online, a pricey commercial system, or one you build yourself-- the most important aspect of any Forex trading system is discipline, discipline, discipline. And more discipline. Once you have your trading rules in place, stick to them like a porcupine to Velcro.