You might be wondering what is the different between a forex strategy and a forex system. Forex Strategy is something that is more general. For example, scalping is one forex strategy. However, you have to go in more details to practically scalp. In the same manner, swing trading is another forex strategy. Swing trading entails riding the mini trends in the market. A swing trade can last for a few days. Position trading can be another forex strategy. Position trading is long term. Forex strategy can be price action based. It can be indicator based.
However, a forex system is something that is very focused. Forex system gives you the exact rules to trade a particular currency pairs. It tells you what timeframes you are going to use. How you are going to decide when to enter the market. It also shows you when is the best time to exit a market. So a forex system is something mechanical and rule based that leaves very little discretion on you when making a trading decision. A forex system is like if A then B, if B then C, if C then D. These mechanical rule based systems are developed to take away the element of discretion in trading that generates the emotions of fear and greed when you make the trading decisions.
So when trading with a forex system, you only need to follow the rules. These rules are meant to take away the emotions while trading. Emotions are one of the biggest enemies of a trader. When you follow a system, the system tells you what to do and what not to do. You simply follow what the system says. However, when we talk of a forex strategy, we haven’t decided upon the precise rules that will tell us when we are going to take a trade and when we are going to skip a trade. A forex strategy is a general description of how you are going to trade like you are going to swing trade. There is a lot of discretion when you talk of a forex strategy. Of course, you are going to hear forex strategy and forex system being used in place of each other synonymously.
In actual trading what you need is a system that is proven and tested. As we pointed out in our last post, developing a forex system needs a lot of testing. It can be a few years before you can finally decide how good this system is after looking at hundreds of live trades made with that system.