DEFINITION of Forex System Trading
A forex trading system is a method of trading forex that is based on a series of analyses to determine whether to buy or sell a currency pair at a given time. Forex system trading could be based on a set of signals derived from technical analysis charting tools or fundamental news-based events.
For short-term day traders, a forex trading system is usually made up of technical signals that create a buy or sell decision when they point in a direction that has historically led to a profitable trade.
BREAKING DOWN Forex System Trading
Forex trading systems can be either manual or automated. A manual system involves sitting at the computer screen, looking for signals and interpreting whether to buy or sell. In an automated trading system, the trader "teaches" the software what signals to look for and how to interpret them. It is thought that automated trading removes the emotional and psychological components of trading that often lead to bad judgment.
Both automated and manual day trading systems and signals are often available for purchase. It is important to note that there is no such thing as the "holy grail" of trading systems. If the system was a perfect money maker, the seller would not want to share it. This is why large financial firms keep their "black box" trading programs under lock and key.
System traders will often use other asset classes such as equities, bonds, and commodities that may be correlated or negatively correlated to determine their trading strategy.