All Forex trading systems can basically be categorized under the following:
- Reversal forex trading systems
- Continuation ( trend ) type forex trading systems.
– Reversal type forex trading systems
The best type of reversal trades occurs when you enter just above or below support or resistance.
This is usually where a double top or bottom formation usually occurs, and when you have synergy of say a double top forming against resistance you will have a very high probability trade.
Also – the more skilled you are in identifying support and resistance levels, the higher the probability of the trade will be.
An entry method for this type of forex trading system can be something as simple as a reversal breakout.
– Trend Type Forex Trading Systems
The majority of trading systems falls into this category, and the most important part of such a trend following system is to identify the correct level to enter the trade.
We all know the saying:
“ The trend is your friend – until it ends.”
You do not want to enter near a top or bottom
With such a system you want to enter at levels where support or resistance manifests in the direction of the trend.
The highest probability trade in such an instance is where you wait for a pullback to a support or resistance level like a Fib ratio and then enter on the breakout.
Another type of trend following system is impulse systems, where you enter in the direction of the trend when the market is in impulse mode.