Plenty of trading systems exist online and in books. Whether these forex systems will work for you is up to you. You may find someone has already developed what you were thinking about. However, these other systems might not fit your lifestyle. Your system should at least follow what you are able to do. One that was devised for the million dollar investor is probably not something you would want to trade with. If you are looking for a modest increase for your investment fund, then you should be concerned with a system that fits your fund size. Here are some primary rules to trading that can help you establish a system.
Forex Rule One for Developing a Trading System
· Maintain your position in the trend
To trade successfully you have to be able to recognise the main trend. Jumping from one trend to another is going to create more losses for you. Those who trade the support and resistance ranges have done so over time or are beginners losing money. You want to find one main trend in forex. It might be a downtrend or an uptrend. If it is the uptrend you stay in until the indicators say it will change.
You sell and wait for a new uptrend. Once you learn to recognise the up-trends, you can start to trade on the downtrends in support and resistance ranges. These ranges mean the trends reverse after it hits a certain low or high point. These points are based on consolidation times in the market for a currency pair. If you decide to counter trend or go against the main trend you could definitely lose and suddenly. The counter-trend is just a short blip of profit taking or negative market forex news.
Forex Rule Two for your System
· You want to buy strong and sell weak or buy low and sell high
If you buy a strong currency it is maintaining its value. The economy is stable and it is most likely going to continue holding up against market moves. You would sell the weaker currency. This is the one that is losing value against other currencies. It is always best to have this contradiction in your pair rather than two strong currencies or two weak currencies. Forex trading can happen with two currencies trading in the same direction, but it is more volatile and harder to read with accuracy.
The second point is to buy low and sell high. In other words, if you buy into the currency pair when the rate is weak and ride the high you make money. It is often easier to find the low to high instead of looking for the high point, which would go to the lower point. You have to watch out for the downtrend fake out. In forex sometimes you are unable to tell what a trend is and what is just a small blip on the change. The stronger currency tends to remain strong even with a slight weakness. Of course, it does depend on the global market situation. Think about the global recession.
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