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Forex — There Is No Sure Fire System |
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Submitted by Patricia Adcock
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Anyone claiming to have a sure fire trading strategy for the Forex is either lying or truly a genius because none exists—period. The Foreign Exchange market, or Forex, is the single largest market in the world. Actually, the Forex has no centralized market location but instead exists as an informal trading network where banks, governments, and retail investors can all come together and exchange currencies. Retail investors trade on the Forex via a software platform typically supplied by their broker. Nearly 2 trillion dollars are exchanged every day (the Forex is open 24 hours per day in between Sunday and Friday) giving investors ample opportunities to profit from the volatility and liquidity of the Forex.
But in truth, while the Forex offers a very simple and attainable path to sustainable investment income—it is extremely volatile for the retail investor. The standard transaction size on the Forex is $100,000 and would be very prohibitive to the majority of investors were it not for leveraging. The typical margin on a Forex trade is 1%, or $1,000. Highly leveraged positions definitely give investors more access to potentially profitable opportunities—but they also are very susceptible to losses. That is why Forex investors need a solid investment strategy to find the best currency pairs and entry/exit points.
Unfortunately, there just is no sure fire system but that is no reason to come to the market unprepared. Dow Theory states that long-term, identifiable trends exist with respect to price movements. These trends can be identified using technical analysis. There are a number of Forex investment strategies that involve the use of technical indicators to identify and capitalize upon these pricing trends. Once you find the best strategy for your particular investing style, here are a few tips to help improve your odds of success on the Forex currency market:
1. Never move your stops—these are in place to prevent losing more than you are comfortable with and investors typically move them when emotions are guiding their decisions.
2. Trust your charts—charts are everything to a technical trader and you must trust your investment strategy and interpretation of the charts in order to succeed. Don’t allow short-term price fluctuations distract you from the bigger trend—because that is where the profits lie!
3. Back testing is critical! You back test an investment strategy by creating a hypothetical investment portfolio performance history of a currency pair you are interested in. Then, apply your current asset criteria to the hypothetical portfolio and see how accurately your strategy predicts movement. You want to find a strategy with a 70% success rate or higher in order to be profitable on the Forex.
4. Never over trade! Short-term investors lose their money to the long-term investors. You can make more profit with 5-6 great trades than by using some scalping strategy which is very vulnerable to loss due to the highly leveraged positions common to the Forex.
While there is no sure fire system for trading on the Forex, these simple steps will greatly improve your odds of success and help you develop a reliable strategy that will consistently produce profits—even when it does miss occasionally!
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