This is a guest post by Megan Fields
The multi-billion-dollar per day Foreign Exchange Currency Market (Forex) is appealing to the individual investor because it is one of the most liquid investments available. In a way, it is a very simple, straightforward type of investing. Prices can either go up, down or sideways.
That is not to say that you can simply open a Forex trading account with a broker and start placing trades, unless your goal as a Forex trader is to become what’s known as, in Forex jargon, a “donor.”
Assuming that you are going to engage in Forex trading with the goal of making a profit, it is helpful to develop some strategies that will enable you to trade logically, calmly and without freezing or acting irrationally in the heat of the moment.
Many successful strategies have already been developed, so you don’t have to start from square one, or reinvent the wheel. There are practically innumerable strategy developers that hope to sell you their strategy or strategies. Any reputable strategy developer will give you a free trial period. Testing strategies is a lot like trying on shoes. You may see some that look right, are priced right, and are available in your size, but if they don’t feel good, you’ll regret buying them and will never wear them. When sampling Forex strategies, the most important criteria is to make sure that you’re comfortable with it.
Some of the elements that make up a Forex strategy relate to which markets you want to trade, the amount of your available trading funds, the amount of time you have to devote to actively trading, and your trading goals.
As stated before, Forex prices can either go up or down, which is referred to as a trending market, or they can go sideways in a narrow channel, which is called a trading market.
Many experts have concluded from years of observation and research, that the Forex markets spend 80% of their time trading sideways and 20% of their time trending.
A strategy that performs well in a trending market is therefore going to be effective only around 20% of the time. For the other 80% of the time it is necessary to have a strategy that will perform well in a sideways market.
Further, it is a good idea to have variations on each of these two strategies so that you can best customize them to match your trading goals, abilities, and most importantly, your trading equity. The greatest trading strategy of all time will not work for you if it necessitates $100K of account equity and you plan to start trading with $10K. That’s because a trader with $100,000 can afford to stay in a trade much longer and not panic when the market forms its inevitable peaks and valleys that might cause a trader with a $10,000 account to abandon a trade, sustaining a loss, often just right before the market changes direction and turns a loser into a winner.
Megan Fields is a guest author from FranklinDebtRelief.com, a website aimed at helping people recover from financial losses stemming from credit card debt.