Forex trading systems.
A forex trading software system is simply a rules-based strategy to trading forex. As its name suggests, forex trading software systems are generally run by a software program which watches the market for patterns and alerts when it detects such a pattern. Forex traders frequently find honing and developing their own system to be an integral part of their learning curve. As with anything in life, getting into force without a proper plan in place is extremely risky. There is no such thing as a get rich quick scheme to becoming a successful forex trader. However, developing your own plan is definitely one of the greatest keys to ever making a consistent profit from forex trading.
The two major types of forex trading systems are mechanical systems and discretionary systems. With the former, traders are required to follow an internal algorithm or manual process while analyzing the market. Eventually, once the system finds profitable trading signals, the trader must act on them immediately and purchase or sell according to the signal generated. While this system can provide steady profits, it has no flexibility at all. The downside to using discretionary systems is that the market is always changing and regardless of how a forex trader plans to react to a particular signal, the result will always be dependent upon the actual market situation.
On the other hand, automated forex trading systems are simply software programs which trade independently and thus are completely flexible. This allows traders to alter signals based upon their own personal discretion. However, this also means that the more sophisticated the robot, the more likely it will fail. Also, there is no guarantee that even the most advanced automatic forex trading systems will always provide profitable trades; after all, human psychology can sometimes create false signals which completely cancel out any previous or future profitable signals.
These systems work by continuously monitoring the real-time data pertaining to the foreign exchange market in its various pairs. Once a profitable currency pair is identified, the system will enact a trade by purchasing a certain quantity of a specific currency. It will continue to watch the currency pair, looking for trends and changes, until such time as a profit is made. The best part about these forex trading systems is that the strategy never rests. As long as it is paired with a solid strategy, the robot will continue to generate profitable trades and, hopefully, keep losing ones to balance out its gains and losses.
Of course, one must be careful when deciding between the merits of a discretionary system and a mechanical one. The problem with discretionary systems is that they rely on intuition, which can be notoriously bad at forecasting the behavior of the market. In addition, these mechanical forex trading systems do nothing to counteract the human psychology factor. Human psychology can be completely manipulated (if desired) but these programs simply do not allow themselves to be programmed like this. As such, traders may find themselves subject to bad trades once the software has made its move, even if the move was initially justified by a more mechanical system.
On the other hand, while automatic forex trading systems do not work forever, they are extremely robust and consistent. While humans can and will make mistakes, the degree to which these errors are distributed across the entire phase of the market conditions is unlikely to vary much from phase to phase. Therefore, traders who stick to their trading strategies regardless of market conditions are most likely going to see a substantial increase in their profits over time. This is what makes automatic systems so preferable to discretionary systems.
In addition, it should be noted that real-time forex trading systems are not exclusively utilized by retail forex traders. They are also frequently utilized by investors to reduce the cost of risk per trade and to maximize returns. For example, a retail trader might use a forex trading strategy in which he buys a currency with the hopes of eventually selling it for more money than he initially invested. The same trader would also want to avoid taking a loss on his initial currency investment, which is why he would choose a forex trading strategy that includes stop losses, in order to minimize his potential losses.
Of course, it is up to each individual to determine how he plans to use forex trading strategies and when he is best suited for one particular type of strategy or another. There is no right or wrong answer to this question. In the end, it is up to each trader as to what strategies he wishes to pursue. While some traders may be perfectly suited to implementing a technical analysis strategy over a one time frame, others may be best suited for using a fundamental analytical approach.