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Forex Trading System: How to Build and Design it?

Forex trading system: Forex market is an international exchange market where some currencies are bought and the others are sold accordingly. Trading in Forex market goes in currency pairs like EUR/USD for Euro/US Dollar of USD/JPY for US Dollar/Japanese Yen and it is unlikely to have any external controls.

The transactions between the counterparts of Forex market are carried out via electronic network or over the phone. That's why Forex market is known as an "interbank" market. There is not any trading center for FX market unlike futures and stock markets.

The borrowed capital is often used for trading in Forex. In this case, currency speculations are carried out by getting a credit line, which is called marginal trading. This fact confirms that you can trade in Forex without being supplied by any real money. Therefore, the trader may deal with large transactions at a high speed and low fee without having a considerable initial capital.

Forex has two fundamental trading strategies: Fundamental and Technical Analysis. The sense of technical analysis is to invest money after studying past data with hope that the history would behave cyclically. Fundamental analysis deals with analyzing various different fundamental factors within the country, like economical and political situation hoping that they will affect exchange rates.

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Only national banks, multi-national corporations and other large players used to have an unlimited access to foreign exchange recently. 1980's gave birth to new rules that have established margin accounts making participation possible even for small investors. Forex has gained its popularity thanks to margin accounts. Having a $1,000 investment and 100:1 margin accounts you get an access to $100,000 funds.

A reputable broker is usually required for Forex traders to carry out their transactions. CFTC (the Commodity Futures Trading Commission) registers such reputable broker as FCM (a Futures Commission Merchant). Many beginner traders often make 2 following mistakes: starting their trading without having a strategy and trading lead by emotions. It happens when you, having just bought and watching the rate decline, start panic and rapidly sell just to see the following market growth. Be sure to lose your money trading like this.

Profitable Forex trader has an adequate strategy and does not let his emotions deal with trading.

Forex trader requires good education concerning movements of the market as well as different kinds of orders to carry out his trade with maximum profit and minimum risk.

Understanding the market along with the forces affecting it is the first step to becoming a successful trader. You can base trading strategies on this knowledge for successful usage in your trading.

Forex has 5 most important groups participating in the trades: Banks, Governments, Corporations, Investment Funds, and traders. Traders are the only group that does not have an external control; they only have to report to themselves. A margin agreement, conducted during establishing Forex account includes the statement that any trades, which the broker considers too risky, may be interfered by him. You may start your trading after establishing your Forex account.

There are various kinds of accounts offered by brokers. Standard deposit depends on the broker but is generally from $1000 to $2000 however there are mini accounts that let you in having only $200. Leverage can also be different. You get an access to higher amount of money with higher leverage possessing the same investment.

You can find out how various software tools and the system in general work by using demo accounts. These are strongly recommended to be used for every newbie Forex investor.

There are some tools that are common to all brokers despite each broker has its own software. Some common tools that you can expect to see practically in any broker's software are news feeds, real time quotes, technical analyses, and charts, analyses of profit and loss.

Fibonacci studies are used by large amount of Forex traders worldwide dealing professionally and they are the basis of a number of Forex trading systems. A series of numbers forms Fibonacci studies. In this series, each number is formed by summing two previous numbers: 1, 1, 2, 3, 5, 8, and 13. Currency trading considers ratios of Fibonacci more significant. They are the derivatives out of this row of numbers, like 0.236, 0.50, 0.382, 0.618, etc.

Fibonacci levels (or price points) are computed in advance for each pair of Forex in order to let the trader know the moments of entering or exit the market seeing that the forecasts of his Fibonacci day trading system are coming true.

Building a Forex Trading System

Building Forex trading system is understood to be a certain process created by the majority of the charts step by step. It is important for traders to understand.

1) Build

Two important decisions are required from the trader at this first step: what pair of currencies he decides to trade and whether trending will be the basis of the system or not. The movement of each currency pair differs much. Some systems are strongly dependant on the trends whether others don't lose their effectiveness both at bearish and at bullish movements. The entry expertise may seem completely useless in case the trader doesn't know how to book the profit (exit trades).

2) Trading system valuation

There is a bottom line concerning potential value and the one leveraged at each Forex trading system. Historical testing seems to be the best method of estimating the system value. During this check you can understand whether this system deserves following.

3) Fine Tune

You are likely to have some mishaps at your firs system design. In order to find them all out and reach the maximum performance you should use the historical test. Tighter entry schedule will let you minimize losing trades. To avoid frequent stop hits consider a stop limit. In case the losing trades exceed the pips produced on average during the trade, you should use the exit signal.

4) Duplicate the system

Duplicate the system into a number of the same ones after building the basic so that to be able to split duplicates into a set of components available for forming a new one having another setup.

5) Monitor

The final step to take after the system is ready is its test trades monitoring in the demo account. That would be useful before you apply the system in a real account.

Forex online trading system can be bought for a fee, available for free or developed or customized by investors based on their own experience and what works for them. The latter is also the best way around as no one is willing to share foolproof trading strategies if they are constant winners. After all, forex experts do not share the same idea on which day trading systems and tools being the best.

When a trading tool is opaque, its full potential and analysis is not clear. When a tool is transparent, its outcome is immediately understood and obvious to see. The book 'Getting Started in Forex Trading Strategies' by Michael Duane Archer, "Indicators are generally opaque. Charts are transparent." An investor can be a 'take and run' scalper or hold open position for long term, each with their own set of strategies. All the while, the fundamentals of trading systems don't change.

A forex investor can study all the indicators, signals, charts and past performances for various length of time to devise trading systems, but at the core of these strategies is the trader himself. This one factor can make all the difference as there have been instances where a master trader can gain massive profit using basic system but not the other way round.

Jacques Magliolo, author of the book 'Richer Than Buffett' said, "People are the weakest link in any trading plan. Emotions are the trader's worst enemy. resulting in errors in judgement." In his book, Magliolo urged investors to, "ignore the emotions of the masses of investors and traders in the market and learn to control your own emotions."

Funnily enough, investors are usually unhappy when they made a profit after a sale, if prices continue to excalate further. On the other hand, they will feel relieved if they lose some money before their stop-loss order save them from further loss. If you haven't already notice, there is a serious problem in both scenes, where one actually feel bad when winning and relieved when losing. Hence, the best day trading systems are built around controlling the emotion of the trader.

Developing a Disciplined Trader Mentality

To ensure that the mind is not easily swayed or effected, select a comfortable position size and not risk a high stake when in doubt. Having a higher tolerance level of risk and possible glitch such as slippage comes in at a close second. Thirdly, always use stop-loss orders to protect your capital but let profit run. Certainly, this approach requires further fine-tuning in the hands of individual investors.

Emotions Take The Back Seat When Trading

You do not want to be right when it comes to forex. Not that it matters anyway. Remember, the key is to make money, not for your gut instinct to be right or wrong. This premonition that forex traders have when they are in a losing streak also tend to let them to believe that the market is out to get them. In this case, they are letting their emotions get to their head when they clearly know that the forex market is too big to target anyone.

It is not easy to stay cool when your hard earned money is at stake. For many seasoned investors, they have learnt the hard way to see pips as pips, and not as money when trading. Perhaps the one strategy that many forex investors failed to see and benefit from is accepting losses as one of the trading element and learn from it . The Chinese have a popular saying of 'knowing the strength of oneself and its opponent, a war can be won 100 times out of 100 battles'. Knowing the characteristics of a loss, how it occur, its likely factors, the sequence of it occuring and why it occurred is a basic system that investors cannot bear facing.

Taking Calculated Risks With Probability

Charts and indicators fall into this category as they provide the probability for trading. However, past successes achieved can cause traders to be over-confident and neglect taking calculated risks when entering the market. Again, this is an example of the human nature downside in trading. Once a trader had a taste of success, his respect for money will wane and is less cautious and more superstitious in trading, a sure-fire recipe to forex hell.

With these examples, clearly the strongest day trading systems in forex involves controlling the human mind and emotion, before other external trading tools can come into the picture. Whatever systems that you develope for yourself in the future must stem from inside of you to really reap the benefits of forex trading.


Even after successfully constructing and designing a working trading system, a trader may find that his or her system is less than perfect. Some problems may arise now and then such as an event that will keep generating losses. Perhaps the rules are too broad and they need to be optimized. This article will show you the in's and out's of troubleshooting and your trading system should also be optimized in order to maximize profits and keep the losses at a minimum.


Troubleshooting is a very important aspect of system development. A decent trading system will show a profit in most market conditions, but if it at times renders large losses, you will be able to work to not only identify the problem but work to solve it. the Here are four easy steps:

1. Identify the problem - In every instance in which the problem occurred during the backtesting and begin recording when you find that this problem occurs during live trading. In each instance, make note of any tendencies that follow these few factors:

  • Chart price or pattern series - there will be a spike in the prices.
  • Volume - Initially there will be a large volume and after that there will be a low volume.
  • Bid/Ask spread - If there happens to be a spike in price during a low volume, it may indicate a large spread.
  • Margin - if you use it.

2. Evaluate the problem - Use all pertinent information that you gathered to determine how the system malfunctioned or generated a loss. Oftentimes you can use your plain common sense or by the analysis of transaction logs which your broker provides for you.Here are some of the conditions of the four factors that you find listed above could be the reason for the identified problem.

3. Consider alternatives - Try some solutions to any identifiable problems. Consider some of the alternatives that correspond to the above problems.

  • Chart price series or patterns - One thing that is simple to do is to have the system wait until the price becomes more stable before buying. A rule of thumb to follow is to use the differences between any of the previous prices and current prices.
  • Volume - In order to solve this problem, you could simply wait until a stock has a certain amount of volume before a trade is executed.
  • Bid/Ask spread - Instead of the current price, you may want to buy and sell a stock that is based on the bid and ask prices.
  • Margin - If the risk is effectively managed, the using of margin can be successful as well as profitable. If you do not want to keep getting margin calls, then try to limit the downside.
  • Implementation of a solution - Now all is needed is to apply the solution to see how it works. Paper trading is a good idea before you trade with real money. You may find that there are additional rules which may limit the down days but it will also decreae overall profits.