Jumping Into Forex? — Jumping Off A Cliff!

It is very, very simple: the Forex market can help make all your dreams come true or it can become a total nightmare and bleed you dry. As with anything in life, it helps to have a strategy in place to help guide present and future decisions. For Forex investors, there are a lot of options from which to choose, including:

• Scalping
• Swing
• Position
• Discretionary
• Automated

All of the investment strategies listed above have been proven effective in various ways and no doubt have a track record to back up their effectiveness. Still, Forex investing and the specific strategy used will boil down to the investor and their particular style: Hunter or Gatherer.

A hunter is very careful about every investment they make and do not like surprises. This style of Forex investing tends to favor technical analysis. Technical Forex traders sift through pricing charts and back test currency pairs to determine the pair with the greatest pip movement and the least volatility. A hunter does not necessarily believe that they will make a profit with every investment but they do believe that currency pricing momentum can be predicted from historical data. Trend Forex investors tend to favor technical analysis, are patient, and believe that the charts and disciplined investing are the surest path to success.

The gatherers, however, tend to favor fundamental analysis which involves the interpretation of how interest rates and overall economic performance (of the nations involved in the currency pair) will affect exchange rates. Scalping is a strategy of foragers and involves trying to predict currency rate fluctuations for a few hours or days into the future.

Those who believe in the foraging investing style believe that the size and volatility of the Forex market works to their advantage. For instance, when interest rate change announcements are made, foragers believe that they can predict and react to the market faster than the large players. If they predict how the information will change the exchange rates, then they should reap a profit if they can buy a position fast enough. Sudden spikes in gold prices, interest rates, oil prices—all of these things do indeed temporarily affect the markets—but can the forager really capitalize quicker than the larger players?

In truth, the odds are always going to be with the larger players—especially when it comes to having access to breaking news and then reacting to it before the rest of us! This is probably why most Forex traders are considered hunters and opt to use technical analysis to identify trends and then capitalize on them. It is much easier and safer to identify and capitalize on emerging new large trends than to try and make a quick profit guessing at the smaller trends of daily price movement. For anyone serious about success on the Forex, technical analysis, in my opinion, is the best method for making consistent profits and avoiding those horrendous cliffs!