Forex strategy

What is forex trading strategy and how it differs from the investment system?

What is forex trading strategy?

The forex investment strategy is your personal approach to the FX market. The right approach is not a set of strict rules, or a computer program, rather it should contain information about when to buy, when to close your position (sell the currency), cover issues of capital management and appropriate psychological approach to investment. Effective strategy of forex investing should give you a kind of method that gives you a foothold in the market.

Your strategy will be good enough if it will provide you with a profit on more than 50% of the executed trades. The Internet is rife with forex trading strategies that you can buy, but you should be very careful with those. Many of them are too complicated, they are often very expensive, and above all, they are too rigid to be successful for every investor.

Investors who are successful in the forex are making cool and prudent decisions, based on their knowledge and sober analysis of the situation on the market. Making objective decisions comes with experience – You can’t learn this overnight. Building confidence in decision-making requires a lot of time. The investor must try many paths before finding one that suits him.

Your attitude towards investing is heavily dependent on the type of investment strategy you are using. If you are using over-the-top strategy that makes the graphs based on which you’re making a decision, look like a modern-art painting, it is no wonder that you can not invest in a calm and thoughtful manner. Many investors can not understand that the use of a complex strategy, which they don’t understand, leads to failure. Find a simpler solution, learn to use it, understand principles of operation and then build Your own strategy of forex trading.

What is a forex trading system?

Trading system used on forex is primarily needed to determine a rigorous approach to investing based on certain signals, which can take many forms. The most popular forex trading systems are those that use lagging indicators, meaning that they show the general trend a currency pair is following. Other commonly used systems when investing in the forex make use of specific computer programs that use suitably programmed algorithms. Some of these systems are often profitable to investors in short term, but each of them has some inherent flaw.

The problem with many of forex investment systems lies in the fact that you have to react to every signal it sent by the system, otherwise the scheme will simply not work. Many investors end up purchasing some kind of forex system, lured by the promise to investment automation, which also means the elimination of the possibility of making an emotional decision. Sellers of such systems, however, often don’t disclose one important information. Regardless of whether it is a system based on a computer-generated signals, or a system using secondary indicators (lagging), the investor has to open the same number of positions he wants to invest. This means that the investor himself decides what level of leverage will be employed on each investment, which as a result makes such systems unable to totally shut off „human factor” and possibility of misjudgment while investing in those.

Every theoretical advantage of automatic investing over even the simplest investment strategy is being offset by the fact that the investor himself must manually enter the data to open a position and select the size of a lot (leverage), whereas that decisions about buying and closing positions are strictly defined by the signal system and investor is discouraged from departing from earlier picked strategy.

Chapter 2. Picking the correct investment strategy.

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