whether we make our living from the forex or dabble as a
day trader, emotion will unwittingly influence our trading decisions. unless
kept in check, ego, fear, denial, greed or wishful-thinking can all conspire
to seriously – and expensively - erode our performance.
no matter how disciplined and logical we may believe we
are, the cold emotionless decision-making process of a forex trading system is
far more likely to avoid losses than a human counterpart unconsciously driven
by gut feelings, hopes, fears or hunches.
but what is a forex trading system?
essentially, it is a web-based application that
automatically generates buy and sell instructions according to pre-set
parameters. these parameters establish all the timings for market entry and
exit, profit targets and loss limits. typically, they will calculate the funds
necessary for current positions and check margin availability prior to
executing or holding a trade during adverse market conditions.
of course, some forex trading systems are more
sophisticated than others. the more advanced trading systems analyze
historical price data as well as real time price movements to produce entry
and exit signals. depending on
the individual system, an array of data may be crunched behind the scenes.
this data can include such variables as price patterns, price relationships,
momentums and a host of other indicators.
generally, though, the forex trading systems fall into
the following three broad categories:
long term
trend followers which go with the direction of the trend
and hold positions until there’s a reversal. long term outlook can be as
long as 12 months with trades held as long as possible.
mid term
on average, trades will be held for around a month or so
while the mid term system attempts to get the best of both worlds by following
the pattern of crests and troughs in the market.
short term
the outlook is usually no more than a few days hence and
trades are aimed to capitalizing on daily movements.
you should, however, be aware that there are risks
associated with web-based trading systems. back up measures help minimize
system downtime, but there still remains the possibility of hardware and
software failure, either yours or the trading system’s. moreover, there’s
the real risk of an internet-routing outage disrupting the service, so ensure
your trading system allows telephone trading.
in an environment where logic and educated guesswork are
the major elemental forces at work, there’s little prima
facie room for emotion to enter the equation in the global money markets.
and nowhere is this truer than in forex trading where
gradual and predictable change is a scare commodity. price values in the forex
are more akin to riptide undercurrents - swift and strong – than a lazy
tidal river.