5 Tips for Developing your Forex Trading System

Zahir Shah |

Rube_Goldberg.jpg

The world of forex trading is high pressure, fast paced, and tempestuous. There is an art to plying the markets, and it is one that the most successful must spend years perfecting. There are no shortcuts, no ‘get out of jail free’ cards, and no magic potions that will help you to achieve.

This means that choosing the right forex trading system is essential. The best way to succeed in the markets is by building strong foundations for your trading strategy, and the system that you adopt will have an important role to play. The various elements of it should work together to create a cohesive and successful whole, and this means that each element has to be carefully selected with a view to how it will complement your overall approach.

In our view, there are five major components to consider when it comes to developing a system: your budget, your personality type, your currency pairs, your broker, and your trading platform. Each aspect should lead naturally into the others, so that the system as a whole is fluid, efficient, and effective. If you need help to develop yours, then here are a few tips to guide you…

  1. Your Budget
    One of the primary considerations for any forex trader should be the budget that’s available to them, as this will influence every aspect of the trading strategy. Those on a low income may find themselves far more limited when it comes to choosing brokers and trading platforms, and this inevitably means that a higher level of support might not be obtainable within the confines of your financial situation.

    It also means that you might have to ask yourself some very important questions; namely, do you have enough experience and expertise to make your own decisions, without having a professional present to guide you? If the answer is ‘no’, then it might be time to go back to the drawing board and work out whether forex trading is right for you.

    If your budget is substantial, questions will still arise: you have the means to enlist a discretionary service should you require it (more on this later), but do you need it, or would you prefer to sink more of your funds into your trading as opposed to your broker? Remember, too, that the money left over may well have an impact on the currency pairs you ought to trade (high risk pairings are a very bad idea for those with a low budget), as well as the type of platform that you can afford to pay for.     

  2. Your Personality Type
    Another important consideration when it comes to developing your trading system will be your personality type. Forex will always be a high-risk endeavor, but there are degrees of danger within this generic reality. How much are you really willing to lose in the pursuit of success, and would you prefer to run a lower risk with a lower degree of potential reward, or stake everything on the unlikely prospect of fantastical riches? Without an answer to these questions, you cannot begin to choose your currency pairs, nor the trades that will best suit you and your needs, or the brokers that will cater to you. 

  3. Your Currency Pairs
    Currency pairs are a fundamental part of any forex trading system, and the combination that you choose to include in your portfolio must be selected with abundant care. Choose wrong, and your fortune could end up in tatters. Choose wisely, and you will have a cohesive system that delivers success time and time again.

    There are three main factors to consider when it comes to choosing your pairs: your personality type, budget, and aims. If you have a rather timid trading persona, then look for the most low-risk and predictable combinations i.e. EUR/GBP. A similar strategy and approach will probably also suit those on a lower budget, who cannot afford to lose substantial sums if their gamble should fail.  

  4. Your Broker
    Your broker will prove to be one of the most important pieces of your trading system, so it’s essential to choose a reputable broker like ETX in order to fully utilize the opportunities that are presented to you. The three most important factors to consider when it comes to choosing a broker are your budget, the type of service you require, and the platforms that they offer. The first is self-explanatory, the second we’ll explore here, and the third we’ll look at in more depth below.With reference to our second point, there are three types of brokering service available for you to choose from: execution-only, advisory, and discretionary. The distinction between them lies in the level of support that they provide to traders, so your choice should be heavily influenced by how much experience and time you have available to you.

    For those with very limited budgets, or those who would simply prefer to control their own moves, execution-only brokers are the most appropriate choice. They act as no more than a conduit to the markets, offering no advice regarding the trades that you choose to make. Advisory brokers offer a more hands-on service. Although they leave the final decisions with regard to trading in the hands of investors, firms have professionals readily available for those who would like advice and support on their strategies and planned trades.

    A discretionary service is the most comprehensive package available. They tend to be the most expensive option out of the three, and require the least input from investors. When you choose to enlist these brokers, you place the burden and responsibility of decision-making into their exceedingly capable hands, providing them with the power to trade on your behalf.

    The most favorable choice will always be dependent on the individual – their whims, personality, expertise, and time – so it’s very important to really think about the sort of service that you need and want before making a final decision.

  5. Your Trading Platform
    The final piece in the jigsaw puzzle will be the trading platform that you choose, and most brokers will offer two versions for you to pick from: MT4 and MT5 (there may be variations within this). The two have a number of differences between them, and although the latter was originally intended as an upgrade to the former, the suitability of one over the other is largely dependent upon the individual. The best way to discern the ideal option for you is to do as much research into the subject as you can, as well as demoing both types of platforms before making your final decision.

Choose wisely with regards to these five components, and your forex system should deliver success after success.  

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Comments

Private Markets

Cross Campus

With over 500 members and operating 80,000 square feet by summer 2016, Cross Campus is one of the country’s top ten shared, collaborative office or "coworking" operators in the US.…

Cloudera

Cloudera offers enterprises a new data platform built on the Apache Hadoop open-source software package. Hadoop is a data-management platform that can consolidate data in a single repository for comprehensive…