FOREX Investment Strategy

Forex is by far the most widely traded commodity in the world. The major currencies traded are: EUR/USD, USD/JPY, GBP/USD, USD/AUD, USD/CHF and USD/CAD; they make up the bulk of currency trading. While the barriers to entry are low and there's a 24 hour market for major currency pairs, making a profit in the forex market can be difficult, especially without a good investment strategy. The challenge for most is defining a strategy.

Fundamental vs Technical Analysis

There are two primary schools of thought in trading strategy: fundamental and technical analysis. The strategy you employ depends on the asset being traded. While fundamental analysis helps to identify the general direction of a nation's currency, it is generally not as helpful to the trader as technical analysis in forex. This is due to the high liquidity in the market. It is not unusual to be trading in less than tenths of a cent. With increments this small, visual aids (technical charts) can help a great deal more than fundamental indicators (inflation rate). View a one minute, one day, one week, and one month chart of the same currency. Take note of pivot points (points when the currency changes direction) and support (bottom) and resistance (top) levels.

Demo Account

Set up a demo account. Try at least three demo accounts before signing up with a broker. The trading platform can play a huge part in the execution of your strategy. For some traders it may define the strategy. Some platforms may seem more intuitive and others will offer more up-to-date data feeds. Ultimately, the platform you choose should play to your dominant strategy. Make a few trades in each platform, compare spreads, and make a consistent profit before opening up a real money account.

Stop-loss

Trade with insurance. Setting a stop-loss is a little like buying health insurance. You don't want to get sick, but if you do, it's nice to know you're prepared. A stop loss is an order set at a certain price point that will automatically unwind the order if the price is hit. Use shorter ranges for shorter duration trade windows and longer ranges for longer duration trade windows. It may hurt to hit your stop-loss, but at least your book will live to trade another day.

References

• Investopedia: Forex Basics
• Investopedia: Important Forex Attributes