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October 4, 2013

The Importance of Forex Trading Systems

Forex Trading Systems Importance

When you begin trading of the foreign exchange market it is important that you have an effective trading system in place.  This is essential as you require sound forex trading systems are vital to your success.  To develop an effective system you should know what the different parts of a system are and how each part affects your trading.

What are the different parts of the system?

There are a number of parts that make up a winning trading system.  You need to look into all of these parts if you want to be successful on the market.  If you do not have all these parts in your system then you will make mistakes while trading.  The first part of your trading system should be your forex trading strategy.  Once you have this you should consider risk management and a trading schedule.  You should then look at your money management plan and your trading goals.

What about forex trading strategies?

The first part of your forex trading system is your trading strategy.  There are a lot of strategies that you can use when you trade.  It is important that you find the right strategy for your trading style and personality.  It is very important that you link your strategy to your personality.  Many new traders do not consider this and end up trading with a strategy that they are not comfortable with.  The more comfortable you are with a strategy the more successful you are likely to be.

When you look at the strategy part of your system you should consider the timeframe and analysis of the strategy.  Are you more comfortable trading short-term or long-term?  Are you more comfortable with fundamental analysis or technical analysis?

What about risk management?

Risk management is something that all traders have to consider.  If you do not have good risk management you increase the potential of depleting your trading account.  Risk management plan limit the impact of risks on your trading account balance.  The most important part of a risk management plan is the stop loss orders and the take profit orders.

The stop loss orders limit the risks you face with a losing trade.  These orders close a position when they reach a certain loss level.  The take profit order works in a similar way to stop loss orders, but they limit the profits.  This helps in the controlling of emotions like greed when you are trading.

What about money management?

Money management is often completed at the same time as risk management.  Money management plans are systems of controlling your money when you trade and how much you are able to lose.  This is often linked to trading goals when the goals are monetary in nature.  However, you should not actually have monetary goals because this leads to additional stresses and problems when you trade.

Should there be forex trading systems schedules?

When you know what you are going to trade and how you are going to trade you need to know when you are going to trade.  While the forex market is open 24 hours you should not trade at any time.  There are certain times when currency pairs are most liquid.  The best time for most traders is the London and New York market session overlap which lasts 4 hours.

 

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