How to Find the Best Forex Trading System That Actually Works
As a trader you will know what an Forex (FX) trading system is. You might have already encountered some of them, but perhaps you are still unsure how to identify which trading systems look like scams, aimed at personal finances. This article will provide you with an explanation of how to find the best Forex trading system that actually works!
Table of Contents
Trading System Fundamentals
A trading system is a group of specific parameters that define entry and exit points for a given equity. In turn, those points, also known as signals, are frequently marked on a chart in real time, and trigger the immediate execution of a trade. There are advantages as well as disadvantages of adopting a trading system. Starting off with the positive points, here are some of the benefits:
- Emotions are completely excluded
- They can save a lot of time
- It is easier to let others do it for you
However, nothing is perfect, and that is why trading systems have drawbacks – and no Forex online trading system is an exception. First of all, is the issue of complexity. Trading systems require a solid comprehension of technical analysis, and a knowledge of how parameters work to make decisions. Then you have to be able to make realistic suppositions, and then effectively employ the system. The last drawback is that the development of the system can consume a lot of your time.
The Importance of Developing a Custom Forex Trading System
The foreign exchange market never stands in the same place for a long time. The different systems available are able to sustain significant changes over time – they only work well for a certain period, and if not updated, become useless. Simply put, there is no best Forex trading system in the world.
Thus, being able to make changes to systems is vital, because a developer's task is to adjust their system in order to meet all major market changes. It is the only way that a system can exist, and remain useful to traders in the future. By developing your own trading system, you will not only create something unique, but if you consider the previously mentioned facts, you will also make something that will suit your personal style of trading.
There may be a lot of traders that are looking for something that you might implement – and therefore your own system could turn out to be very useful. You could even end up creating a good Forex trading system for beginners.
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Examples of Different Trading Systems
We would now like to exemplify three trading systems based on certain conditions and facts that you should consider. Those Forex currency trading systems include:
- Geopolitical turmoil and Forex trading
- Trading candlestick patterns with moving averages
- Stochastic and EMA scalping strategy for the USD/JPY currency pair
Geopolitical Turmoil and Forex Trading
There is always something that can impact the FX markets more than macroeconomic indicators, press conferences of central banks, or speeches by their governors. It is powerful, due to being unpredictable, and it strikes when least expected. Geopolitical conflicts are a mighty driving force, which you do not want to witness as a trader, or as an investor.
The point of this proven Forex trading system is in your main task. You should observe all the events occurring in the world, carefully evaluating them while trying to predict the future consequences of new events that may come to light. We would also like to exemplify the Crimea conflict. The local currencies of Ukraine and Russia were the first to be seriously affected.
The UAH and the RUB were falling to record lows in front of the USD prior to the central banks taking action, and eventually raising the official interest rate. The next victim is of course the local stock market. For instance, the Russian capital market index, which is the RUS50, dropped close to 12% in one day after tensions escalated quickly, and the US threatened the Russian Federation with economic sanctions.
European capital markets and the EUR currency can potentially be affected too. It is geographically connected with Ukraine - and the European economy will suffer if a Russian intervention in Ukraine occurs. It can sound a little bit exaggerated, but do not underestimate how quickly conflicts can spread. Even if the US stock markets are much less vulnerable, there is no assurance that any war will not touch the US.
Fortunately, nothing like that has happened yet, and we should hope for the best. Having said that, you should understand the reasons we give for this Forex currency trading system. Although geopolitical unrest hurts most financial instruments, there are some instruments that gain from this kind of political disturbance. Safe haven assets – which include the JPY, the Swiss Franc, Silver, Gold, and USD.
What is the point we are trying to make by connecting these factors in a Forex trading system that works? Quite simply, if you don't plan to monitor the currency pairs connected with a certain conflict, then do not involve yourself with such uncertainty. But if you desire to trade, you should buy before something happens locally or globally, and accordingly sell when something has already happened, and when the aftermath is clearly seen.
This is how you can take advantage of the powerful volatility that geopolitical conflicts generate for a number of financial instruments.
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Trading Candlestick Patterns with Moving Averages
It may not be the best Forex system, but let us get to the point. There are a lot of MA variations, but the most popular type are Simple Moving Averages (SMA). In fact, it is the simple average of a security's price over a determined period of time. It's the Exponential Moving Average (EMA) that gives bigger weight to more recent prices.
Let's take a look at this trading strategy. We would like to suggest that you try combinations near the following number of periods: 7, 21, 30, 50, 100 and 200. The moment you have found a MA that works best on a concrete instrument, you will then simply need to hunt for candlestick patterns which emerge around the MA.
This is a very easy-to-use currency trading system that can be quickly utilised, although we recommend testing it out on a demo trading account, and then practicing thoroughly to gain the best understanding and comprehension. The MA which you will apply in your trading should be tuned to produce better results - and the candlestick pattern should meet the necessary theoretical features for a higher probability of success.
Make sure you use money management alongside your trading strategy. You may also require stop-losses to protect your account in case you lose some trades. Do not underestimate the Forex market - even the best systems can produce losing trades from time to time. So be careful and attentive with this FX system.
Stochastic and EMA Scalping Strategy for USD/JPY
Scalping can be an effective way to make a potentially fast return on your investment, particularly if you do not have much time to spend in front of your PC. The strategy implies the usage of a slow EMA and a default Stochastic, which is relatively faster than the EMA on a one minute USD/JPY chart. But why USD and JPY?
*The example below is solely for information purposes and is not to be construed as an offer to buy or sell or trade in any CFDs.
This currency pair may give us the best results. This is one more reason why this is an accurate Forex trading system. This Forex pair is characterised by medium volatility and risk, which makes it perfect to be used with a scalping strategy. So firstly, we may use a 224 EMA in just a 1-minute time frame. In turn, the slow EMA sets the determined trend, and we may use it as a support line, thus betting on a bounce after the price consequently hits it. Besides this, we use a Stochastic (14, 3, 3) on a 1-minute chart as well.
Since our suggested Stochastic is default, it provides pretty good signals. Therefore we are looking for oversold and overbought signals at the time the price touches the EMA. To filter with even more increased efficiency, we look for Candlestick patterns as well, to raise the possibility of a good entry. We have exemplified only an uptrend, but the system works on a downtrend with the same profit. This is another effective online Forex trading system.
Trading Systems: Our Conclusion
We have given three examples of different trading systems or strategies, that depend on certain factors. In case you decide to create your own one professional Forex trading system, consider the factors and situations occurring in the Forex market. Additionally, a full understanding of the technical element of the system is needed to create a high-quality product. As you can see, choosing a good trading system, or creating your own is a complicated task. It depends on how much time you are ready to devote to the challenge and what your expectations are.
Interesting Reads Regarding Trading Systems
If you would like to learn more about Forex trading systems, make sure to read the following related articles:
Most Profitable Forex Trading System
Best Free Forex Trading Systems
What is the Best Forex Day Trading System?
Frequently Asked Questions (FAQ)
What is a trading system?
A trading system is a set of predefined rules that guide buying and selling decisions in financial markets. It eliminates ambiguity by generating clear signals based on technical indicators or fundamental analysis, providing traders with a systematic approach to execute trades.
What are some types of trading systems?
There are various types of trading systems designed to meet diverse market conditions and investor preferences. Trend Following Systems aim to profit from established market trends, while Algorithmic Trading involves executing automated, pre-programmed instructions based on variables like time and price. Day Trading involves making multiple trades within a single day, while Position Trading focuses on long-term investment. Additionally, Scalping aims for quick, small gains, and Swing Trading seeks to capture price "swings" within a trend.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
