My Money Blog

Currency Trading System

Posted on 04. Jun, 2009 by Casper in Forex, Making Money Online

By: Marc Flachs

The currency trading system came into existence in the early 70’s in order to trade commodities. This system was based on Richard Donchian’s 4 Week Rule which is based on futures’ trading. Richard observed the 4 week cycle in the markets and came up with the following rule: Cut short positions and observe a long position when a price exceeds the highest of the previous 4 weeks. Next, liquidate long positions and observe a short position when the price falls below the low of the previous 4 weeks.
The benefits of this system are that it’s purely mechanical and requires no technical knowledge of its working. Observation plays a crucial role in judging the market conditions and one must make a decision either cut short or observe a long position when prices fluctuate. By using this system, traders feel more comfortable in using trendy indicators and such a system is bound to leave other competitors lagging far behind. Generally these currency trading system are simple to understand and are easy to use. Even if you have never traded before, these currency trading systems make the trading exceptionally easy. The choice of a good currency trading system will undoubtedly lead you to huge profits.
However, for a currency trading system to work effectively, it is important that the currency trading is done realistically and not just for thrill of trading. Also, this system works best on a longer term basis and proves profitable to operate even though it is based on a simple methodology. The 4 week rule can be modified to make it non-continuous by using a shorter time span such as a one or two week rule for liquidation purposes and possibly for day trading. With this system, a four week “breakout” would be needed to come up with a new position, but a one or two week signal in the opposite direction would warrant liquidation of the position. Our trader remains out of the market until the next new four week breakout is registered.
The currency trading system best follows the often quoted maxim – “let profits run, while cutting losses short”. This system is based on fewer trades, which means less commission. Another benefit of this system is that it can operated with or without the aid of a computer, thereby making it more easy for those traders who are not computer literate or prefer working manually.
This currency trading system should be part of any trader’s essential foreign exchange education so as to understand the true benefits of this system and contribute more to the profits of such an organization. If successfully implemented and rightly followed, traders who use this system will experience a higher growth in their profits with the use of futures’ trading and the 4 week rule system. They will also gain an edge over their competitors since this system is simple and does not involve complex calculations. As a result, it becomes fairly easy to interpret trends and make wise decisions accordingly.

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