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The Best Forex Trading System Doesn't Exist

Updated on 2013-06-18 by Guest

The Foreign Exchange Trading market presents the investors with multiple opportunities to tap successful returns from their investments. However, before you start with the game, it is essential that you devise a trading strategy based on your own strengths and weaknesses. While it is well known and universal that markets would change all the time, the fundamental characteristics of an individual are poised to stay constant over considerably longer period of time. It is thus necessary that as an investor, you understand your fundamental way of playing in the market and your objectives, which are to be satisfied from the investments in the Forex trading.

Though there is no single Forex trading system which is considered to be the best and all time perfect, it is however possible to devise a trading strategy in the Forex market with relevance to a specific investor. Therefore, the initial step to perform in the Forex market is to choose your style of playing in the market, which would suit your personality and objectives. This style of your choice could either be related to the pattern observed in individuals who do fishing or in those individuals who prefer downhill skiing.

As it is a common observation, fishing involves complete planning with strategy development, devising a suitable methodology and finally waiting for the right time. Similarly, those investors who opt to follow fishing style in the Forex trading systems would opt to work on a well-developed strategy in the Forex market and would wait with patience to determine the right time to make a move in the market. On the other hand, downhill skiing commonly involves getting into action rapidly for the sense of thrill that the game gives. Similarly, those investors with such style of trading in the Forex market would also be rapid in their investment actions and would intend to attract quicker and higher profits as and when the exchange rates of currencies retrace their movements.

Such highly contradictory movements being made by investors with different styles of trading in the Forex market are often related to trend trading and counter trend trading. As with fishing, those investors who develop a strategy and adopt patience in Forex trading are commonly referred to trend traders as they would develop and redevelop their trading decisions repeatedly before they are confident with one best trading strategy and timing to implement the same.

On the other hand, those who follow rapid action strategies similar to downhill skiing are referred to as counter trend traders as they always get into action with only the end of earning returns in the mind. They do not focus much on trading strategies or the individual strengths and weaknesses, nor are they much bothered about the market timing to make their investments. It is thus necessary that you, as an investor in the Forex market choose your own style of investing before entering into the market and such chosen style should be in line with your strengths and weaknesses.

The next major step underlying the best Forex trading system is to identify the term of investment in the currency market. While some investors are comfortable to invest their money for long term in the currency markets and thereby wait for the returns, there is always the other set, which looks out to earn abnormal returns in the short term. This decision of determining the time frame for investments would in turn depend on the trading style that an investor chooses.

For example, if you choose to follow the fishing strategy wherein you are ready to wait for a trend to develop in the market, so that you can tap it to earn higher returns, then you would span your investments for longer term. The basic reason behind this pattern of investment is that the trends in Forex markets generally develop over few months rather than in days, as is commonly observed in the other capital markets. It thus becomes essential for a trend trader to wait until the trend develops so that he could enter into the Forex market.

On the other hand, the counter trend traders or the faders as they are popularly called, would trade in the Forex markets with much shorter time frames. The most effective and shortest time frame for any investor to trade in the Forex markets is to trade on the hourly charts with an average risk – reward targets of a minimum of 30 points. This minimum target of 30 points is fixed on the basis that the bid ask spread nature of Forex markets makes any other targets less than 30 points to be totally ineffective.

Once the time frame for investment is chosen based on the style of trading, the best Forex trading system would then revolve around determining the kind of analysis that is to be carried out to determine the buy and sell decisions in the market. The fight between fundamentalists and technicians had always been ongoing, owing to the fact that the two sets of analysts focus on two extreme concepts for making their investment decisions.

While fundamentalists would always propagate a detailed analysis into the economic, industrial and company specific conditions influencing the performance of a company’s share price in the market, the technicians are ever comfortable with a basic and in depth analysis into the history of share price movements in the market, owing to the reason that the share prices would reflect all public and hidden information related to the company.

However, choosing the best analysis for your Forex trading system would again depend on your style of investing and time frame of investments. While trend traders with long-term time frames would choose fundamental analysis for their investment decisions, the faders with shorter time frames would always be comfortable with the technical analysis.

One major thing that is to be remembered while trading in the foreign exchange markets is that the currency markets can accommodate any style of trading to earn higher returns. It is thus evident that there is no best Forex trading system that exists universally for all traders in the currency markets. Rather it is essential for you to choose a style and strategy for investing which would highly suit your personality and objectives of investment.

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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.