A trading system offers a simple solution because it provides the confidence needed to stay disciplined, especially if you know it’s a successful Forex trading strategy or you have done back-testing on the system yourself.
In today’s article, we will review the types of trading systems that work best for Forex traders and explain their pros and cons.
What are the Main Forex Systems?
The first step is to know what type of trading suits your trading schedule. It makes no sense to trade on a 30-minute chart during the day if you have a full-time job which does not allow you to monitor the charts.
Let’s discuss all the different trading systems that traders can use:
- Manual rules-based trading using technical analysis. This system allows traders to follow clear rules that explain their trading decisions from start to finish. This approach based on technical analysis offers little flexibility when analyzing the markets but it’s useful for beginners that need stricter guidance.
- Manual discretionary trading using technical analysis. This type of trading is also based on technical analysis but allows for more freedom in how traders analyze and use the charts and price action. Their trading plans do not limit their actions and decisions within fixed rules but rather use guidelines how to trade repetitive price patterns.
- Manual news or fundamental trading. Fundamental analysis is another way of tackling the markets, although this is more suitable for either very short-term with news releases or long-term with important economic figures and trends.
- Automated trading systems. Last but not least, traders can also tackle the markets with automated trading systems which require no or little work to implement. But there is time and effort needed to build, test, update, maintain, and evolve the automated method.
What are the Main Types of Forex Traders?
Besides the four general aspects, there are also differences in how to approach trading from a timing perspective. Let’s discuss the options traders have from short-term to long-term:
- Scalping: these are quick trades often entered and exited on the 5 or 15-minute charts. This type of trading is intense and offers high frequency but also requires experience to remain profitable in the long run.
- Day trading: these trades are entered and exited within one trading day, which means that trades are not held overnight. Trades often last a few hours or a couple of candles. Day traders trade the market volatility up and down.
- Swing trading: these trades are kept open for more than one day and are therefore held overnight. Some swing traders keep their positions open for several days and often use 1 hour, 4 hour and daily charts. Intra-week traders often close their setup before the weekend. Others keep their positions open during the weekend and are able to have them open for weeks.
- Long-term position trading: these traders keep their positions open potentially for weeks and even months. They use the long-term time frames such as daily, weekly and monthly charts for their decision making and try to capitalize on larger trends in the financial markets.
What are the Most Used Forex Trading Strategies?
The most interesting Forex trading strategies are based on three core aspects:
- Price action
- Price patterns
In Elite CurrenSea’s Forex & Crypto blog we regularly update our readers with analysis and information about how to trade these three methods.
- Examples of price action trading are based on candlesticks, candlestick patterns, momentum trading, and price swings.
- Examples of indicator based trading are Camarilla levels, Fibonacci levels, moving averages, Murrey Math zones, and Fractal levels.
- Examples of pattern trading are wave analysis, trend lines and trend channels, breakouts, trends, and reversals.
Which one is best for you? There is no right or wrong. Each trader will need to find the one or two systems that match their trading style and personality the best. What is profitable for you does not have to work out for another trader, and the other way around.
Also, realize that it is perfectly fine to mix tools and concepts together to build your own custom-made Forex trading systems. We combine parts of price action, indicators, and patterns to compile robust trading plans, which are practical and simple at the same time.
You want to make sure that your trading plan addresses these key parts:
- Trend direction.
- Support and resistance.
- Continuation or reversal patterns.
- Entry level.
- Entry confirmation.
- Exit plan.
Having a plan for the above steps will help you prepare for Forex and CFD trading.