How to Find a Successful Forex Trading System

By: Andrew Daigle

The Foreign Currency Exchange Market, or more commonly known as the Forex market is the largest financial market in the world. Over $2 Trillion dollars are traded on the Forex market every day. Forex traders make money in the currency exchange market by playing one currency against another. They play currency pairs and bet that one currency will either increase or decrease in value and the other currency (or cross currency) will go in the opposite direction.

As I mentioned, Forex traders trade currency pairs. For example a trader might play the Euro against the US Dollar (EUR/USD pair). If the trader thinks the EUR will increase in value over a certain period of time, the trader will go "long" the EUR/USD pair. If the trader goes long this currency pair, he/she is betting the EUR will "increase" in value against the USD. If the trader is right, they make money. If they're wrong, then they lose money. Successful traders always employ a good forex trading strategy so they consistently profit from their trades.

There are two ways to play the Foreign Currency Exchange Market that all experienced Forex traders use. One is called Fundamentals and the other is called Technicals. Fundamentals refer to news events that move the markets. For example if a country increases interest rates, then most likely that will cause the currency to increase in value. If a country releases poor housing numbers then that could cause the currency of that country to decrease in value.

The technical side of trading the Forex markets refers to using charts and indicators. Price charts and other technical tools are used to determine a possible trade. Indicators like MACD, Stochastics, moving averages and more are just a few of the tools in the technical traders toolbox. The best Forex traders use a combination of both fundamental and technical trading. Great traders never rely on just one side.

Some traders trade longer term and some trade short term. A long term trader is considered a position trader. Position traders take a longer term approach to trading the forex market. For example if one currency looks like it could be bullish over the next few weeks or months, they may place a long position trade and let it ride for weeks or months until they exit their trades to take profits.

Traders who take a short term approach to trading are considered day traders or intraday traders. These traders only have open trades for a short period of time and most of these Forex traders open and close their trades in the same day or within hours. Most technical traders don't like to have open position around news time because some major news events can actually cause a great technical trade to fail because of an unexpected news surprise.

No matter what style of trading you use, as long as you use a great forex trading strategy and stick with the rules of those strategies, trading the forex market can be a very profitable way to make a living. Not only is a good forex trading strategy important but good money management plays a big role as well. As long as you manage your winners and losers and set the appropriate stop losses and profit targets, you will quickly find that trading the Forex market can be a very profitable business.