How To Determine Which Forex Trading Systems Are Right For You

There are many different Forex trading systems available today and it can be rather overwhelming when trying to figure out which ones will work for you. They can be broken down into four main categories and each has its own advantages and disadvantages.

Manual Forex Trading

This is the type of FX trading that most people know or have heard about either on the Internet or on late-night TV infomercials. This trading system involves being trained a specific method of trading and then actually learning through experience how to trade a certain method. Whether this is day trading, swing trading, scalping or micro-trading, trending or position trading, you are actually controlling every trade that you take. You'll be looking for whatever indicators you use and then making a decision on the right time to place your trades.

These types of Forex trading systems are also known as “directional” trading, where you need to try and decide which direction a currency will go – up or down. Then you “hope” that you’re right and guessed the direction correctly once you’ve placed the trade.

The advantage of this trading system is that you maintain total control and are not relying on anyone or anything else, except yourself and your trading tools (such as charts or graphs).

However, there are several downsides. For starters, these systems are usually quite expensive, requiring an upfront purchase of at least $2000 to $5000 just for the training.

Furthermore, these Forex trading systems are very time-consuming. For starters, the learning curve is usually 2 to 4 years during which time many people often blow out their accounts 1 to 3 times, or they quit long before. The phrase “blowing out your account” means that you’ve lost your entire account deposit. Then, on top of that you have to be physically present to trade. Sometimes you can spend several hours just waiting for the right trading opportunity. Depending on the trading system and your time-zone, you may also be required to trade during all hours of the night.

Finally, very few people, usually only 3-5%, actually become successful traders. We learned this lesson ourselves the hard way. Like many others, we fell for the infomercials purporting that anyone can follow their system and become successful traders, and we have spent many thousands of dollars trying to find systems that work for us. The reality is that most people do not have what it takes to be successful traders.

Forex Signal Service

This is a Forex trading system where you subscribe to a set of indicators that tell you when to buy and when to sell. There are a number of different services available that will email you indicators of when you need to trade. There are others where you install the indicators onto your trading platform which show you when to take a trade, such as the well-known red and green up and down indicator arrows.

Signal services often remove the guesswork and emotion from your trading as you simply follow the signals and trade them accordingly, which can dramatically increase your chances for success. In addition, you still maintain 100% control and the learning curve usually takes much less time, often only a few hours. However, you must still physically place the trades yourself and these signal services can be expensive, usually costing anywhere from $100-$200 per month to $2000-$5000 per year.

Auto-Trading Robots or Expert Advisors

These Forex trading systems have become very popular recently is the use of Auto-Trading Robots, also called Expert Advisors or EA's. These EA's automate the entire process and they are great for people who are too busy to trade in front of the computer for hours at a time. This is basically a lot like the second method as it uses certain indicators to decide when to trade. However, it actually places the trades for you. You simply download the EA onto your trading platform and turn it on, then it automatically opens and closes all your trades for you.

Due the fact that we are always on the lookout for ways to generate income passively, we find this Forex trading system very attractive. We like the fact that this method combines the expertise and technology of Forex professionals in an easier format. You're leveraging their experience into a verifiable trading method for yourself. Also, these robots are typically available for a one-time upfront cost of $100-$300 or a low monthly access fee.

However, the downside of this system is that you cannot control any of your trades and you must leave your computer turned on 24/7 for the EA’s to continue to trade. If your computer happens to restart automatically by windows updates, it could result in losses because the robot has been turned off but trades were still left open.

In addition, there are many auto-trading robots or EA’s that simply do not work, do not practice good money management or take unnecessary risk, which could result in the loss of your entire account. It is important to thoroughly test an EA on a “demo” account first, or with a small amount of money that you can afford to lose before pulling all the stops out.

Managed Forex Accounts

Managed Accounts are the same as hiring another professional trader, fund manager or broker to trade a Forex account for you.

Again, the biggest problem with these Forex trading systems is the lack of control. Usually you are still in full control of your trading account and funds with the broker, but you are not in control of the actual trades that the trader is placing in your account, or the decisions that the trader is making.

Because someone else is trading your account for you, you are usually required to pay a sizeable percentage of any profit that the trader makes for you, not including any regular account maintenance fees. This percentage could range anywhere from 10-50% of your profit.

A major advantage is that you have nothing to do with any trades being placed in your account - it is completely passive. Everything is done and managed for you usually by professionals who have a lot more trading experience than you.

We have had both bad and good experiences with Managed Account programs. We have been able to find a couple managed accounts that seem to be very consistent and stable with low volatility, but with lower returns.

However, there have been many other managed accounts and almost every trader we’ve hired in the past that performed well in the beginning and then lost most or all of our trading capital by taking unnecessary risks.

Unless you have $1 million to invest, you will have a hard time finding traders who will consistently provide good returns without taking unnecessary risks. So if you are considering hiring a trader, exercise extreme caution and only invest what you can afford to lose.

The thing that you need to remember when trading is that no system is foolproof. You're going to have both winning and losing trades on every system you try. However, if you can find a Forex trading system that includes sound money management and a good percentage of wins, you should continue to stick with it. Start small, risking only what you can afford to lose and trade conservatively. This is the secret of effective and profitable trading in the Forex market.

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