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Currency Trading Systems Article
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Currency Trading Systems Article
Currency markets never sleep and several trillions dollars
are traded everyday, making currencies the world’s biggest and
most exciting investment market.
In recent years, mechanical currency trading systems, using
technical analysis to predict trend movements have become increasingly
popular as a way of locking into, and profiting from the longer
term currency trends.
Making Money from the Longer Term Trends
Currency trading systems are ideal for making profits from
longer-term currency trends, and they occur in all currencies.
The longer-term trends in FOREX markets reflect the health
of the economy.
As economic cycles are relatively long and take years, so
do the currency trends that reflect these cycles.
A good currency trading system can enable traders to lock
into, and make profits from these longer-term trends.
When choosing currencies to trade, it is important to have
good long-term trends, but just as important is liquidity, which
enables traders to lock in profits and exit losing trades quickly.
Currencies that offer good trends and liquidity include:
· The US
Dollar
· Swiss
Franc
· Euro
· Japanese
Yen
· British
Pound.
Currency trading systems remove emotions from trading, which
is the major reason the majority of traders end up losing.
Removing the Emotion from Trading with Systems
There has been plenty of material written about using currency
trading systems, and the works below provides informative reading
for anyone thinking of using a currency trading system.
Traders should try to read the following authors:
Edwin Lefeurve, Jake Bernstein, Larry Williams, Ken Roberts,
Van Tharpe and Jack Shwager whose books “Market Wizards” and
“The New Market Wizards” interview some of the most successful
traders of all time, including the “turtles”. The Turtles are
group of traders who had no prior trading experience, but went
on to earn hundreds of millions of dollars, using very simple
mechanical trading systems.
Currency Trading Systems that Make Money
The developments in recent years in computer software, the
growth of the Internet, and online trading, has seen currency
trading systems become more popular than ever.
Software Packages such as Tradestation, Supercharts, Omni
trader, and many more, allow traders to back test systems, using
a variety of technical indicators that include:
· Stochastics
· Bollinger
bands
· RSI
· moving
averages
· ADX
And many more.
The currency trading system picked can then be analyised,
to see how it would have performed in the markets with commissions
and slippage deducted.
Traders, who don’t want to develop a currency trading system,
can buy systems off the shelf from vendors.
How do you Choose a Successful Currency Trading System?
If you are buying a currency trading system, there are several
things to consider before parting with your hard earned cash:
1. Are you interested in being a day trader, or a trader
looking for longer-term trends? You need to pick a system that
you’re comfortable with and this is mostly down to personal
preference. Some traders like the excitement of day trading
others prefer a longer-term approach.
2. Do you want to have any input into the system, or do
you want it to be totally mechanical?
3. Do you want to trade just one currency, or a basket of
currencies? Using a currency trading system that trades just
one currency can be more profitable but keep in mind, the converse
is true, i.e losses and drawdowns can be larger.
4. When choosing a currency trading system you need to have
confidence to trade with it, and follow the system through losing
periods. To do this you should know the logic the system is
based upon. If you understand the system and its logic, you
will derive confidence and be more likely to follow it - in
contrast to one where the logic is not revealed.
5. What are the average profits you can expect in relation
to drawdowns? All currency trading systems will have periods
of drawdown and losses. Generally the larger the profits the
bigger the drawdowns tend to be over time - so pick a system
that reflects your investment aims and risk tolerance.
6. When you are buying a currency trading system, check
out the system seller’s experience, track record, customer support,
- and whether they have a real-time track record, or a hypothetical
one.
A real time track records means the system has performed
in the market and made money, i.e it’s proven. Trading systems
that simply rely on hypothetical track records mean they have
been back tested, - and with the benefit of hindsight we can
all make money!
While hypothetical track records should be treated with
a degree of caution, you can find out a lot about whether the
system is likely to make money, by knowing the logic the system
is based on.
When considering a hypothetical track record, look for one
where the logic is revealed and not a “black box” system where
you have no idea how to system works.
In conclusion, you can make your own currency trading system,
or you can buy one from a vendor - when choosing one from a
vendor make sure you do your homework, and remember - if it
looks too good to be true, it probably is!
Currency trading systems can, and do make money, and the
effort you put into finding the system that suits your personality,
risk tolerance, and profit objectives, will be time well spent.
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