If you are dipping your toes in the waters of Forex trading, but can't quite figure out a sound Forex strategy, you're not alone. For the uninitiated, Forex is a term that's used for foreign currency exchange. Although it's the biggest financial market on the planet, you're not going to find it in the New York Stock Exchange or NASDAQ because foreign currency is traded in an independent market. Almost three-quarters of the trading volume is conducted by fewer than a dozen international banks.
Although only about two percent of Forex activity comes from individual investors, those numbers are growing. In the past, the difference between the bid and ask prices (referred to as "pips") of a currency pair were very low for international banks and much higher for individual, or "retailer," traders. Today, however, lower pips are available to individuals.
Another development that is favorable for individual investors is a "Forex robot," or automated Forex software. Because foreign currency markets are open somewhere in the world virtually 24 hours a day, constant monitoring by individual investors isn't feasible. Such vigilance is only possible with auto Forex trading, which operates within a certain set of parameters.
Developing a Forex strategy that wins often depends upon which Forex robot you choose. Forex trading programs are also called expert advisors (or EAs), and are typically built on a platform called Meta Trader 4. Because the downfall of many Forex traders (and those trading in the stock market as well) is buying and selling based on impulse, a Forex robot takes the emotional aspect out of trading and bases decisions upon historical data, timing, and price.
On the foreign exchange market, currencies are traded in pairs (the Euro vs. the U.S. dollar, for example), which are designated by three-letter codes. Thus, EUR/USD is the designation for the Euro vs. the U.S. dollar, whereas JPY/GBP is the Japanese yen vs. the British pound sterling.
When a currency pair moves into the automated Forex system's pre-determined trading parameters, the Forex robot opens a trade. When the pair reaches a certain profit point - again, one that is pre-determined - the trade is closed. If the initial trade moves in the wrong direction, the robot will open a second trade that is designed to compensate for the loss of the third trade. When the loss has been compensated for, both trades will be closed.
The best Forex strategy is to use an EA that incorporates historical data to calculate and project the market with 95 percent accuracy or more. You should also use a system that comes with settings that you can then adjust to conform to your trading style and objectives. When you do, you'll be able to take advantage of the dynamic Forex market during all trading hours - even when you're asleep!
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Chris Robertson is a published author of Majon
International. All Rights Reserved. Copyright 2010 (Mon Oct 08 2007)
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