Currency Trading

When attempting to create a winning Forex trading strategy you should firstly investigate money market volatility.

Considering that one can invest in foreign currencies (Forex) at any time of the day on a world wide basis you will need to concentrate on certain sections of this vast money market and find an area in which you can specialize.

Forex trading markets in opposing regions are obviously governed by opposing money market conditions.

Forex pairs are all of course subject to money market volatility, however most foreign currencies have various volativity levels depending on the time of day. Before you start Forex trading, you must create an understanding of the Forex trading system, which involves the pairing of foreign currencies in various time zones throughout the world, and factors that can influence volatility.

The London Forex or Forex trading money market is the worlds largest, responsible for nearly one third of the worlds transactions. It is the biggest, most volatile and therefore responsible for many massive profits and of course losses.

For example, if we investigate Forex pairs such as the British Pound and the Japanese Yen, or the Pound and the Swiss Franc, their volatility can exceed in excess of 140 pips. Forex traders recognize that fluctuations such as these can generate massive profits in short time for smart investors.

Volatility towards the end of the London money market is governed by big traders converting their finances to US Dollars prior to the start of the US Forex money market which is second in size to the London Money market. The US money market is buoyant during the morning which is a period where trading overlaps with the European money market resulting in a period of very high liquidity.

Forex Traders willing to take risks on high volatility Forex pairs during this time will often concentrate on pairs such as the Euro/USD and the US and Canadian Dollars, or the British Pound and US Dollar.

Investors who are more conservative may consider less volatile Forex pairings such as the Australian Dollar/Japanese Yen, or the US Dollar/NZ Dollar and US/Australian Dollar

The Asian Money market led by the Tokyo Exchange also overlaps the London money market.

Many large investors will take their positions in the Tokyo money market prior to the commencement of the London session, and we note that the Forex pairs of the British pound and Japanese Yen can prove volatile during this period of overlap which is early morning in the US.  This slow trading time is often used  by investors to position themselves in readiness for the opening of the US or European markets.

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Forex trading can be an incredibly profitable way
to make a living. The combination of margin leverage
and a low minimum amount required for trading make
forex trading ideal for small investors.

However, despite the opportunities for profit, the
majority of forex traders lose all of their money
within a year.

Why? Well I have found six root causes that can explain
why so many new forex traders fail:

1. Unrealistic Expectations. Too many novice traders read
about how easy it is to make money trading forex and
they just jump in and lose everything before they even
know what hit them.

Forex trading is not a get rich quick scheme. It requires
hard work and research to be successful. And even then,
you cannot expect every trade to be a winner. Even the
best traders lose on trades. The key is knowing when to
cut your losses and focus on the winners.

2. Not doing enough research. Forex trading is easy to
learn, but difficult to master. Experienced traders make
it seem so easy, but predicting currency prices is a
complex endeavor. And as a small investor you are at a
disadvantage. Large financial institutions have resources
that you don’t. They may have an entire staff analyzing
the most recent economic indicators while you just have
yourself. You must be prepared to spend some solid time
learning before you can expect to win big.

3. Gambling instead of investing. If you think you can beat
the market without doing research and just picking currency
trades based on a hunch, good luck. I’ve seen people do this
and they usually pick a few winners and make some short-term
profits, but in the end they just get slaughtered.

4. Lack of focus. Depending on which broker you use, there
are likely dozens of currencies you can trade. But when you
are just starting out, think small. Pick a few of the most
popular currencies, such as the US Dollar, the Japanese Yen,
and the Euro, and focus exclusively on them. The more
currencies you trade, the more data you will have to analyze
in order to spot trends. Better to know a few currencies really
well than to know just a little about each.

5. Not having a trading system. There are literally hundreds,
if not thousands, of different trading systems available. Some
you will have to pay for, but many are free. Choose a system
that is right for you based on your capital, your goals, and
your personality. Without a system, you might as well be throwing
darts.

6. Not sticking to your system. Having a trading system is not
enough, you have to follow it through good times and bad. This
is easier said than done. Its easy to get greedy and go for the
big score or get nervous and get out too soon. You must follow
your system to determine both entry and exit points. If you
ignore them you risk missing out on a big upswing or being stuck
in a trade as it goes sour.

The best forex traders know that knowing when to get out of a trade
is even more important than knowing when to get in.

Currency trading

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