Anyone who says they have a foolproof way to trade on the Forex is either lying or a genius, because there is no such thing. The largest market in the world is the Foreign Exchange market, or Forex. In fact, the Forex doesn't have a central market place. Instead, it is an informal trading network where banks, governments, and private investors can all meet to trade currencies. Retail investors trade on the Forex through a platform of software that is usually provided by their broker. Every day, almost $2 trillion is traded on the Forex, which is open 24 hours a day, Sunday through Friday. This gives investors a lot of chances to make money from the Forex's volatility and liquidity.
But in reality, the Forex is a very simple and doable way to make a steady investment income, but it is very risky for the average investor. The average size of a trade on the Forex is $100,000, which would be out of reach for most investors if they couldn't use leverage. In most Forex trades, the margin is 1 percent, or $1,000. Highly leveraged positions do give investors more opportunities that could be profitable, but they are also very likely to lose money. This is why Forex investors need a good investment strategy to find the best currency pairs and entry/exit points.
There is no surefire system, but that doesn't mean you should go into the market unprepared. Dow Theory says that there are long-term trends that can be seen in how prices change. Technical analysis can be used to find these trends. Using technical indicators to find and profit from these price trends is part of a number of Forex investment strategies. Here are a few tips to help you have more success on the Forex currency market once you've found the best strategy for your investing style:
- Don't move your stops. They're there to keep you from losing more than you're willing to, and investors usually move them when their emotions are getting in the way.
- Trust your charts. For a technical trader, charts are everything, and you must trust your investment strategy and how you interpret the charts if you want to be successful. Don't let short-term price changes take your attention away from the bigger trend, which is where the money is.
Back testing is very important! You can check how well an investment strategy worked in the past by making a fake portfolio performance history for a currency pair you're interested in. Then, use your current asset criteria on the made-up portfolio and see how well your strategy can predict how the portfolio will move. To make money on the Forex, you need a strategy that works at least 70% of the time or better.
- Never over trade! Long-term investors take the short-term investors' money. You can make more money if you make 5 or 6 good trades than if you use a scalping strategy, which is risky because Forex positions are usually very leveraged.
Even though there is no foolproof way to trade on the Forex, these simple steps will greatly increase your chances of success and help you come up with a reliable strategy that will always make you money, even if it misses sometimes.