Before moving ahead, let’s understand what a Forex trading system is. It is basically a method of trading, buying or selling, which is based on observation and analysis. This helps to determine whether to sell or buy a specific currency at a given time. In other words, it is a set of rules that without which trading cannot be done in an accurate and disciplined manner.
The system of Forex trading can be based on a series of signals which are observed from a technical analysis using charting tools, or on basic news events. The latter is also referred to as fundamental trading. In most cases, trading systems are based on technical indicators.
Who needs Forex day trading systems?
Forex day trading is strictly carried out within one day and trades are always closed before the market closes on that same day. Those who trade in this way are referred to as day traders.
A Forex day trading system usually comprises of a set of technical signals which affect the decisions made by the trader about buying or selling on each of their daily sessions. The system can help traders navigate the market much more efficiently and confidently with the aim of allowing them to gain more profits.
Background of Forex day trading system
In the past, the activity of Forex day trading was only limited to financial organisations and professional speculators. The majority of day traders were the employees of banks or investment firms who specialise in equity investment and fund management. However, with the introduction of electronic trading and margin trading systems, the day trading system has now gained popularity amongst at-home traders. With easy access to Forex trading, now almost anyone can trade Forex from the comfort of their homes.
People choose to go into day trading for various reasons. However, a factor which is likely to have made this activity much more popular over recent years is the fact that day traders do not incur the Swap. This is a fee that is incurred when a position is kept open overnight.
How do Forex day traders make profit?
Day traders leverage large sums of capital to make profits by benefiting from small price changes among the highly liquid indexes, stocks or currencies. In other words, these traders are not looking for large dips and peaks in the prices. Instead they are happy with small, moderate movements, but their trade sizes are bigger than the ones of the people that invest over longer periods. As a day trader, the main aim is to generate a substantial amount of pips within a particular day. Ideally, you should generate returns on both the highs and lows of the assets.
The best Forex day trading systems
There are many different Forex day trading systems – it is important not to confuse them with trading strategies. The main difference between a system and a strategy is that a system mainly defines a style of a trading, while a strategy is more descriptive and provides more detailed information – namely entry and exit points, indicators and time-frames. A brief overview of some of the most commonly used systems is given below:
- Scalping: In this system, the selling or buying takes place instantly after the trade achieves profitability. In this trading type, the target is to attain profitability when you are up by just a few pips. You can expect to trade a lot and generate quite a large volume. However, the income per trade is rather small.
- Fading: This system involves the shorting of stocks, index or a currency pair immediately after upward moves. In this form of day trading, the price target is set when buyers start to step in again. In other words, you are aiming to make pips on the market moves that try to restore the past price of an asset.
- Daily Pivots: In this system, the profit is gained through the volatility of the daily prices of assets. The buying or selling takes place during the low period of the day and closing of the trade happens at the high period of the day. The price target here has a similar pattern as above.
- Momentum: In this type of Forex day trading system, trading is usually done on news releases, or by locating the strong moves which are trending and are supported by high volumes. The price target in this strategy is when the volume starts to diminish and the appearance of bearish candles takes place. You are generally looking into acquiring an asset a few hours before news is released and then getting rid of it after the market has moved enough into your direction.
The entries in the different Forex day trading systems make use of similar kind of tools which are utilised in normal trading – the only difference is in the timing and approach. With day trading, you generally expect to make less profit per trade, yet you expect to make far more trades.
What is the best Forex day trading system?
As you may have gathered by now, dealing with a day trading system can be quite a challenge. There is a lot to learn and prepare for that many of us simply don’t have the time, experience or knowledge to do. Therefore, when you are starting out, it can be nice to know what the best trading system is going to be. While it’s always nice to have a Forex trading strategy to work from, you need to have something beyond that to help you actually make the grade and start earning some money.
Because the best Forex trading system that will be suited to you will fit your own market and needs, finding the ideal one can be hard work. However, the best thing to do is remember that the majority of Forex trading systems are built around various strategies and run with their own foundations, fundamental aspects and characteristics.
The community of traders using day trading systems is loaded with so many different people and their setups, so finding the best day trading system is pretty hard – it depends on so many little factors that having a blanket answer to give you is almost impossible. However, you can feel safe in the knowledge that finding the right trading system will typically come from doing your own research. Do your research into finding the right trading system for your needs and choose the best day trading system for your budget.
Being able to dictate what the best FX day trading system is for you also comes from your own experience – what do you currently know about the actual regime? Do you need something that can help you get into the system from the very start or do you just need something that will give your existing knowledge a push in the right direction?
Whatever you pick, you need to start looking at the FX trading systems that are out there – some of them will make outrageous claims that you simply cannot trust, but it should be easy enough to start making the right choices and decisions based on how realistic they sound. Remember, the program has to sound authentic – if it’s not built around actionable information and doesn’t provide you with details that you can actually benefit from in the long term, move onto the next one.
Be ready to look around and find the right balance for your individual needs – what you know, what you can afford and what you are willing to invest will all dictate what the top trading systems are for you.
In other words, the best system for trading Forex is the most suitable one. When it comes to trading short term, you would need to it to be convenient and to feel confident using it, as this is an activity you would be performing for a few hours almost every day. It is suggested that you try out all of the above mentioned systems on a demo trading account first before engaging in live account trading. This is applicable even for experienced traders that are looking to switch from one system to another.
Determining your perfect day trading system for currencies is a hard task. It takes a lot of trial and error, yet it can pay back enormously too. Once you have determined a perfect system, then it is time to select the most appropriate strategy for it. A strategy will provide you with more detailed information on executing your day trades, while relying on the defined technical indicators and objects. What is also recommended is to try implementing a few systems and compare which one is the most interesting and comfortable for you. Don’t run for profits straight away, the main idea when selecting a system is to be confident in what you are doing.
Source: https://admiralmarkets.com/education/articles/forex-strategy/what-is-the-best-forex-day-trading-system?#c!=1 © Admiral Markets