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10 common types of trading systems in the Forex market



This is a useful article about the types of trading systems. As a rule, "profitable" traders use several different types of trading systems at the same time to diversify risks and increase profits on trading in general. What are these types or classes of strategies, what are the features of each of them, and what are the distinguishing criteria for belonging of a particular strategy to a certain type, we will talk about all of this below.


Any novice trader, in addition to the standard discipline, psychological stability and concentration, must first develop a systemic thinking, which is based on the trading system. For this, trading systems were created and later classified, which are designed to synthesize the preparatory work carried out in the form of: graphical, wave, candlestick and indicator analysis.

As part of this article, we will look at 10 well-known types of trading systems for trading on the Forex exchange.


1. One of the widespread, popular and most profitable types of trading systems in the Forex currency market is Trend. It is built on assumptions about the tendency of growth or decline, if it starts, its stability and continuation are traced. The trend, from which the name of the system originates, is considered relative to a certain time period.

It should be distinguished that what is defined as a trend on a daily chart in a monthly perspective often turns out to be a market correction. The trend is based on indicators, but in most cases, the analysis of the data they provide shows strength at the end of the time period, or, with a more sensitive setting, they may signal false entries. Therefore, when using a trend type of trading, you should be careful with such starting data.


2. The second group of trading strategies based on the assumption that prices move within a corridor or channel, which is limited by the levels of resistance from above and support from below, is called Flat or Grid. The flat, or as it is called the channel strategy, organizes trades by buying near the support level and selling near the resistance level. In addition to determining the levels, which is not always possible to do for objective reasons, the strategy is sometimes built using oscillators. A combination of oscillators with support and resistance levels is possible.


3. Another type of trading system, which is already used by more advanced traders, is a counter-trend system based on determining the trend reversal point. A correctly defined reversal moment allows you to get the maximum profit during the reverse movement, but the use of these strategies is associated with a large number of false entries and a very close stop loss level. The counter-trend type of trading includes strategies using Bollinger bands, the Alligator indicator and others.


4. To supplement trading strategies, or in some special cases, systems based on Forex patterns are used, which are a characteristic combination of a price model and its derivative over a period of time, which has a predictable continuation according to statistical data. The most famous patterns include such figures of technical analysis as "Adam and Eve", "head and shoulders", "two tops", "folding rule" and others.


5. Some traders often use intuition and, in accordance with these qualities, apply a system based on wave analysis, based on the Elliot theory and suggesting that market behavior depends on the psychology of the participants, expressed in impulsive behavior. The wave cycle, defined on the corresponding charts, is determined by the impulse of the trend in the forward direction and correction in the opposite direction, while the waves have a pattern and their own structure.


6. There are also types of trading strategies that assume that an event after the price breaks out of an established range is significant, thereby having a chance for a trend to develop. Such trading systems are called volatility breakout systems. The borders are determined by the location at a small distance from the current prices, and the distance to them is determined by the current general market volatility. The quality and number of transactions, when using such a system, will be determined by the establishment of a breakout threshold, when placed close to current prices, it will result in a large number of false signals, and removal will lead to a decrease in the frequency of transactions.


7. In addition to the systems described, there is also session trading. This type of trading systems is characterized by the implementation of trading strictly during the period of a particular trading session, this predetermines the use of certain currency pairs, which most actively manifest themselves during these sessions.


8. One of my favorite types of trading systems is strategies based on Fibonacci levels. This class combines the features of trend and pattern trading, and also makes significant use of wave analysis. Principle - the price should create corrections from the trend bouncing off special levels that are built on the basis of the Fibonacci number sequence.


9. Pips trading strategies, are based on intra-day trading and are characterized by small take profit levels with relatively large stop loss orders.


10. Well, the last type of trading systems that we will consider is combined or, as they are also called, universal trading systems. This type of strategy is considered the most reliable, since its construction is based on a combination (mixing) of the various systems described above into one single system, after which a certain testing period must be carried out and are used in trading.


So, in the end, we can say that each type of trading system is chosen by the participants depending on market situations, experience of use, their own training and style of the trader. It is also worth noting that the choice of the type of trading strategy greatly affects the temperament of the trader, i.e. You should feel this and choose a strategy for yourself not by its profitability and ease of use, but first by its comfort, and then the trader himself can add and apply developments or additional Forex filters to it, thereby adjusting everything by himself (this, in fact, a very important aspect).





Published on: 9/16/20, 4:52 PM