Currency trading systems have become more popular than ever in recent years.
Here we will look at the advantages of currency trading systems and how to pick one that's right for you.
Trend Following the Key to Big Profits
As economic cycles of boom and bust take years, so do currency trends that mirror the health of the economy.
Traders who can spot and lock into these trends can make substantial profits.
The major currencies traded include:
These currencies have good trends, and have high liquidity - which is essential when exiting markets quickly to lock in profits and more importantly, cut losses.
A Disciplined Approach to Trading Profits
Currency trading systems remove the emotional component from trading, which is the major reason most traders lose.
A currency trading system has no emotions, will trade in a mechanical disciplined fashion, cutting losses and running the big profitable trends for maximum long-term profitability.
Emotions - The #1 Major Reason Traders Lose
The definitive book on the subject was Edwin Le Feuvre's, 'Reminiscences of a Stock Operator', which was based on the trading experiences of legendary trader Jessie Livermore.
If you don't think emotions will interfere with your trading then you need to read it!
Other authors to discuss trading systems and emotions include: Jake Bernstein, Larry Williams and Jack Shwager and the latter's book "Market Wizards" is essential reading for any trader.
Just how effective a system can be was proved by "The Turtles", a group of traders who had never traded before, but who all were given access to a system and went on to make millions of dollars.
The developments in terms of computer software and the growth of the Net have seen system trading reach a wider audience than ever before.
For example, packages such as Tradestation and Supercharts, allow traders to build and test their own systems using technical indicators such as stochastics, bollinger bands, moving averages and candlestick charting patterns.
You can test these indicators in various combinations over historical data to see which combinations are successful. Traders who do not wish to do this able to buy ready made packages from vendors.
Finding a Technical Trading System that Makes Big Profits
If you choose to buy a ready-made currency system, these six guidelines will help you.
1. Understand the basis of the logic of the system. If you don't understand and believe in the logic, you will not have the discipline to follow it.
2. The system should aim to catch the long-term trends; day trading currencies has less probability of success than long term trading.
3. Simple systems tend to work best, as they are more robust in the face of changing market conditions. There is no link in currency trading systems between complexity of systems and their success.
4. Look at the maximum drawdown from peak equity. This is important in terms of money management, as you need to expect your biggest drawdown is ahead and commit sufficient funds to cover these downturns.
5. Not all systems come with real trading records; they can come with simulations over historical data. Don't discount simulations; if the basis is soundly based logic then they can still work well.
6. Finally, judge a system over years not months. All systems can and do have periods of losses.
Currency trading systems give anyone the potential to make big profits in the currency markets.