When it comes to trading the Forex having a trading system is the number one key to success. Making currency trades as "mechanical" as possible is the only way to sanely trade a market where the traders fear and greed are always in play.
This is where a trading system shines. Having a system that says when "A" happens you automatically execute trade "B." This kind of system has a great effect at removing much of our emotional trading.
How The Systems Work
As you probably know, Forex trading is based on the relationship of one currency to another - called pairs. And these pairs are used to create a trade. For instance you believe that the Euro is due to rise against the Dollar - or said another way - you believe the Euro is strong and the US Dollar is weak. Based on this assumption you would expect to see the Euro rise in value over the dollar and if it did you would profit.
So the pair you would be trading is the EUR/USD pair where the first currency listed, in this case the Euro is called the base currency. The second, in this case the US Dollar, is called the counter or quote currency. Each pair is quoted with a single number that expresses the relationship between the pairs. So if a quote of 1.4525 were quoted that would mean that it would take 1.4525 Dollars to exchange for a single Euro.
The Fibs
Fibonacci, often called the fibs, are a method of gaining some measure of predictive pricing in the Forex markets. They are based on the famed number sequence developed by a mathematician named, you guessed it, Fibonacci. The sequence that he developed is a sum where each of the two preceding numbers are added to form the next in the sequence. So a sequence starting from the number 1 would look like 1,1,2,3,5,8...and so on.
The Forex is especially sensitive to the fibs. If you spend any time with your currency charts you will notice how prices turn at or near Fibonacci numbers.
Now of course then numbers are not as neat and clean as 1,1,2,3,5 etc. In the currencies they look more like. .236, .50, .382, .618, etc., Using this type of number sequence you will find that you can use the Fibs as a price point to enter or exit a trading position. They offer a seasoned trader a certain measure of predictive capability.
They can be used in you trading system as the response to other market signals so if you get a market signal that tells you to enter the market long the Euro, then your mechanical response would be to wait until the prices broke through the next Fibonacci resistance line and then enter your position. Waiting for this type of movement would help prove that the price was on the rise.
Of course this is assuming that you expect the price of the Euro to go up, and that is not the only way the market could move, but this is the beauty of the Forex, you can trade the market up or down. It lets you make money in both directions.
For more Forex currency trading systems visit http://ForexTradingRobot.info a site dedicated to trading systems for seasoned traders and beginners alike.
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