The Difference Between Strategies and Systems in Forex Trading

 
 
 
For anyone beginning to learn how to trade Forex, one the best Forex training tips to heed is to be clear about the subtle differences between Forex trading strategies and Forex trading systems.

 

While it’s probably true that most people have come to use these terms as synonyms for one another, strictly speaking there are distinctions to be made (just because a difference is subtle doesn’t make it unimportant).

 

So the common perception is that both terms refer to a set of rules and parameters that cover the percentage of the account you’re prepared to risk in each trade, early exit triggers, stop losses, profit targets and so on. This amounts to the basics of scanning the currency markets for profitable trades, then entering and exiting them at the optimal points.

 

These rules and parameters (and others as well) actually constitute Forex trading strategies. A Forex trading system puts them to work in a Trading Plan: a set of clearly defined rules for every one of the strategies a given trader uses.

 

A Trading Plan includes the trader’s psychological profile, his or her timeframe preferences and overall trading preferences (such as attitude to News Trading, plus trade entry, trade management/stop trailing and trade exit points for each trade strategy) as well as account management and trade management (e.g. stop trailing).

 

To sum it up, Forex trading strategies can be thought of as the bare bones of trading, whereas Forex trading systems operationalize the strategies and are much more comprehensive, explicitly taking account of the kind of trader you are (trend trader, day trader, scalper and so on).

 

This might sound like splitting hairs but don’t forget: profitable Forex trading should be seen as a business and you can’t afford to be mushy about key terminology when you’re risking your own business.