Forex trader

Forex Trading System: Trading the EUR/USD Currency Pair

How do you go about trading the EUR/USD currency pair?  Many currency spread betters use a forex trading system to determine their entries and exits and to analyse the markets for future trading opportunities. A good and robust trading system will include a set of rules which will allow a trader to trade and place spread bets without thinking subjectively about the trade. Mechanical forex trading systems are the best for trading in this way and, despite the name, they are not entirely automated but instead make the trader act more robotically towards every position. Removing emotions and subjectivity in this way improves the trading of many who struggle with the discipline by either holding on to losing positions in the hope of a reversal or by entering at the ‘wrong’ time and chasing losses as a result.

Let’s look at the EUR/USD spread betting pair How do you trade this currency pair? Forex trading spread betting systems which provide a more manual basis for entry can be subject to the emotional force of trading markets. The major problem with this is separation of the traders ego from the market, which is emotionless towards whether they win or lose. The feeling that the market is somehow against you is a very familiar one experienced by many, if not all, traders at some point. Using a currency trading system which has been properly back –tested and paper traded to prove that it has an edge will alleviate this anxiety. A lot of trading psychology is about accepting losses and being in command of a forex trading system that you know will make you money over time will help you to accept these losses as ‘part of the system’.

Forex trading systems work like casinos and make money over several trades rather than simply working for one or two trades in certain market conditions. Robust forex trading systems perform regardless of the market conditions and can be adapted to take account of flat or trending markets. One of the most important aspects of a good forex trading system is that it has a good exit strategy and utilises a stop-loss which is relative to the reward ratio. A good forex trading system will have at least an equal risk:reward ratio. This will ideally be a ratio of 1:2 but will very much depend on the level of profit and loss that the system in designed to endure. Large profits relative to tight stop losses will obviously require a less impressive risk:reward ratio in order to be profitable.

There are multiple types of forex trading systems available and many of these focus on a single currency pair due to the differences in behaviour of the different pairs. Currency pairs are both inter-related and can perform very differently depending on a number of factors governing their movements. The correlations between currency pairs mean that some forex trading systems will work on these correlated pairs, although this will depend on the type of system and whether the rules are unique to one single pair. Some forex trading systems, for example, are designed to trade outside of market trading hours when price is moving slowly and volatility is very low. The majority trade within the market hours of a given currency pair to capitalise on the major movements of the day. All Euro and dollar pairings are most active during the European and US market sessions although the demand that these major financial regions create means that most major and minor pairs will experience a level of activity during these sessions. The Japanese yen pairings are also active in the late evening and overnight in European and North America regions whilst the Euro and Dollar pairs are very quiet.

Finding a forex trading system is fairly straightforward and the basic rules of many of these can be found for free on forums or advisory websites. The foundations of a good currency trading system can be taken and adapted to suit a traders personal preference to trading. Manipulating the rules of a forex trading system is the best way to find a winning strategy which will be personal enough for the rules to be followed. Whether you are looking to trade manually, mechanically or using an automated system there are multiple options available to begin to formulate a forex trading system to suit your needs. It is well-known fact that many traders fail in their quest to become profitable with some putting this statistic at around 90%. For the majority of those who are unable to trade their currency systems profitably it is often the case that they have been unable or unwilling to follow the rules. Despite having a forex trading system which is known to be profitable, the obstacles of emotional trading and lack of discipline may have caused the system to fail. Having a robust forex trading system is not necessarily the only requirement in currency trading; the extent to which this suits a traders personality is central to its successful application.

 

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