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Q. What is a Trading System?

Quite simply, a Trading System, in its most elementary form, is nothing more than a set of rules used by a trader to determine when to enter and when to exit a trade.  A trading system can also include a rule for how much to risk in any given trade and, of course, in futures and forex markets, whether to enter long (buy) or enter short (sell). The trading rules can be based upon any number of different factors taken into account by the trader.

If trading rules are based purely upon factors external to the market such as interest rates, economic news announcements, balance of trade deficit, weather reports, perceived economic weakness or strength, etc., then the trading rules are said to be based upon "fundamentals."  Fundamentals trading requires an enormous amount of interpretive skill as well as regular, continuing and ongoing reading and study to determine how one translates the most current economic news, etc. into trading signals.  Some traders, such as Bob Brinker of radio financial talk show fame, are very, very successful in their trading using fundamentals to formulate trading rules. 

On the other hand, over the years traders have discovered that trading rules can be based purely upon observed past price movement.  Trading rules based upon observed past price movement are said to be rules based upon "technicals."  The theory is that no matter what market price chart you are observing, that market's fundamentals are reflected in the market's price movement itself.  Some theorists even say that all price movement is predetermined by certain basic mathematical and timing principles.  Examples of this are found in theories formulated by Gann, Elliott and Murrey, each widely known and read for their respective technical market price prediction theories.

Some trading theorists, notably Thomas Murrey, describe market movement as having properties akin to repetitive fractal patterns (Here's a commonly used example of a fractal pattern: Picture a square divided by one vertical line and one horizontal line into four equal smaller squares.  Then picture one of the smaller squares again divided into four more squares.  Then picture one of these smaller squares again divided into four more even smaller squares, and so on, to infinity.  The idea is that in nature, and markets, an initially large pattern will be found to repeat itself in proportionally ever smaller and smaller versions, ad infinitum and, as the theory relates to market price movement, one can then predict short-term price movement by seeing and understanding the longer-term price movement patterns of the market.). 

Other theorists say that by observing price averages, the volume of trading and such things as short-term patterns of market price movement over a given period of time one can determine future price movement of that market.  So, while trading on fundamentals one takes into consideration many differing types of information external to the market itself, when trading on technicals one takes into account only purely mathematical considerations related to past market price movement.

A purely, 100% automatic trading system is one in which not only has all decision making has been built into the trading rules, but it is also one in which buy and sell signals generated by the trading system are sent by the system directly to the market to be executed without any human interaction whatsoever.  This means that once the system is set up and running one need do nothing except ensure that the electronic equipment on which the system runs continues to operate smoothly and without significant interruption.  If the system is successful all you do is watch your trading account grow.  You don't phone your broker to enter or exit a trade.  You don't stare at your computer screen wondering whether or not you should enter or exit a trade.  Everything is done for you by the trading system.

All Winning Forex Systems are 100% automatic trading systems and are based upon purely technical analysis, only.
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