My Strategy to Invest In FOREX

2007-08-10T12:18:00.000+08:00

The First time i heard about FOREX is when my uncle said that he lost lots of money in the forex trading. I was told that FOREX is just like an endless hole where you keep putting money inside but you can't reach to take it out. Is this true about FOREX? Well, it's depend on how you play and what strategy you use.

Before we get through my strategy, let's talk about what is forex? You may get the details about forex from wikipedia. For your convenience, i will explain it below so that you don't need to go far away.

FOREX (Foreign Exchange) is an international foreign exchange market, where money is sold and bought freely. The Forex market has become the world's largest financial market with
the average daily trade currently exceeds 2 trillion. Some say that it would take the entire New York Stock Market about 3-4 months of daily trading to equal one day of trading in Forex! Forex is part of the bank-to-bank currency market known as the 24 hour Interbank market from GMT 00:00 Monday to GMT 10:00 pm Friday.

The Forex market is so vast and has so many participants which make no single entity or even a central bank can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived. Thus central banks are becoming less and less inclined to intervene to manipulate market prices.

So, how can we win in the forex market?

I have been watching and playing Forex market for about 2 months and i had learnt something from there. At the moment, i only play with USD/JPY, GBP/JPY, EUR/JPY and USD/CAD. Among these four currency pairs, USD/JPY and USD/CAD are safe and stable to play as the trend moving very slow. While the GBP/JPY and EUR/JPY is dangerous to play as the trend up and down per day can be very fast.

To win in the forex market, you need to watch the US stock market performance (visitwww.marketwatch.com). Why i need to watch the US Stock market? Well, US is currently the world market leader, and based on its performance, it will affect the world market such as European market, Asia market and others. You can check the world stock exchange at www.stockq.org, can read in english, chinese and japanese.

So, what does the US Stock market do with the forex market?

If the US stock market index go up, the currency pair of USD/JPY, GBP/JPY and EUR/JPY will going up together with the US stock market. Since the US Stock market is going up, the Japan Stock market will also going up on the following day. And this make the USD/JPY, GBP/JPY and EUR/JPY more stable on the day. If the US Stock market on the next day going down, the USD currency will go up and make the JPY going down.

The picture above not only proof that if the US Stock market go down, the others currency pair against JPY will also go down. It also proof my next currency pair USD/CAD which is going up while the currency pair against JPY are going down.

So this is how i play, when the US Stock market going up, i buy on the GBP/JPY, EUR/JPY and USD/JPY. If the US Stock market going down, i buy the USD/CAD. With this theory i had tried, i win from only $0.30 to $5.50 and from $5 to $22 in just few days.

Here is the Proof of the Currency Pair of USD/CAD against GBP/JPY, EUR/JPY and USD/JPY:

(click on the image to view enlarge)

Some people said that the market is hard to predict. This is the biggest and the critical mistake which make most of the new forex traders losing money. When you try to predict the market then you are simply hoping or guessing or even gambling, thus the market will destroy you and your equity which make all the new forex traders run away from the forex market. Hoping or guessing or gambling is always not a right way to make money in any business or any investment.

SOME TRADING GUIDELINE FOR THE BEGINNER

1.) Plan your trade:
You must have a trading plan which consist of a position, stop loss point, profit taking level, plus a money management strategy. A good plan will remove all the emotions from your trades.

2.) Make the Trend be your friend:
Do not buck the trend. When the market is bullish(going up), go long. On the reverse, if the market is bearish(going down), go short or don't play on it. Never go against the trend.

3.) Know when to cut loss:
If a trade goes against you, sell it and let go. Do not hold on to a bad trade hoping that the price will go up. Most likely, you end up losing more money. Before you enter a trade, decide your stop loss price, a price where you must sell when the trade turns sour. It depends on your risk profile as of how much you should set for the stop loss.

4.) Take profit when the trade is good:
Before entering a trade decide how much profit you are willing to take. When a trade turns out to be good, take the profit. You can take profit all at one go, or take profit in stages. When you've recovered your trading cost, you have nothing to lose. Sit tight and watch the profit run.

5.) Be emotionless:
Two biggest emotions in trading: greed and fear. Do not let greed and fear influence your trade. Trading is a mechanical process and it's not for the emotional ones. If you sit next to a successful trader and observe him or her, you might not be able to tell whether he or she is making or losing money. That's how emotionally stable a successful trader is.

6.) Do not trade based on tips from other people:
Trade only when you have done your own research. Be an informed trader.

7.) Keep a trading journal:
When you buy a market instrument, write down the reasons why you buy, and your feelings at that time. You do the same when you sell. Analyze and write down the mistakes you've made, as well as things that you've done right. By referring to your trading journal, you learn from your past mistakes. Improve on your mistakes, keep learning and keep improving.

8.) When in doubt, stay out:
When you have doubt and not sure where the market is going, stay on the sideline. Sometimes, doing nothing is the best thing to do and also another kinds of winning.

9.) Do not overtrade:
The best is 2-3 positions at a time. No more than that. If you have too many positions, you tend to be out of control and make emotional decisions when there is a change in market. Do not trade for the sake of trading.

Please feel free to post a comment as we can discuss or share the opinion or experience.

My Strategy to Make Money in FOREX

My Strategy to Invest In FOREX