FX TRADING STRATEGY
If profitable trading in a 24-hour global market
is difficult for the
professional financial trader, it is even worse for the part-time trader. Professionals are in a position to act when a market signal occurs at 2:30 AM and the part-timer is sleeping. By the time the part-timer can act, the information is out and the market has already reacted. Hold-and-hope decisions
that violate established
goals and trading criteria are one of the prime reasons that 95% of Forex traders lose money.
So, how can one limit risk, set reasonable goals, and apply discipline to their trading while still achieving consistent annual returns north of 30%?
Automated trading, diversification, and a counter-intuitive approach to trend trading strategies used in a number of large trading firms, are gaining traction with the individual investor.
Automated trading offers some
major advantages over manual, signal-based or trend-following trading. By defining one’s personal trading criteria, the trader eliminates hesitation, spur of the moment decisions, fear, reflection on recent trades, exuberation, and other emotions that cause traders to violate trading principles they have resolved to keep. When traders set the trading strategy, risk amounts, diversification and buy/sell guidelines, they can comfortably go to work, sleep, play, or go about daily activities knowing
60 FX TRADER MAGAZINE January - March 2012
that the automated system will buy and sell strictly in accordance with their predefined criteria. Te automated system watches, waits and acts, whatever the hour of the day. It never sleeps, takes a coffee break, or checks for the trendiest restaurants on an iPad. Fear, greed, and doubt don’t enter into trading activity. Automated trading is both the guardian angel and the bodyguard of the investor’s principal. Scalping, and subsequently regretting lost profits, doesn’t happen. Holding and hoping for a recovery while losing multiple times the disciplined loss limit doesn’t happen. Automated trading offers a systematic approach to managing risk, limiting losses, and systematically taking profits.
Automation alone is not enough to minimize risk and achieve consistent profits.
Without remains
diversification, exposed
to a trader unnecessary
risks. Whereas diversification in stock trading means investing in different market segments, in Forex trading, it is the use of different trading strategies for the same currency pair. For the scalper, swing, daily, or breakout trader, the manual gymnastics of trading four strategies on one currency pair is beyond most peoples’ capabilities. Yet some traders are manually trading four or more currency pairs at the same time. By using multiple automated trading programs, the individual investor can easily implement multiple strategies on the same
currency pair or any number of currency
pairs. Diversification is
not just the number of currencies traded; rather, the optimal approach for trading diversification is the use of multiple trading strategies on the same currency pair. The power of the computer program to weigh each variable in nanoseconds, recognize an opportunity and quickly trade to take advantage of that opportunity gives the automated trader a major advantage over the manual trader.
Some try to approximate automated, diversified trading by purchasing two or three low cost, signal-driven, manual trading software systems, assuming that the diversity provided by different vendors’ trading systems will lessen risk and improve trading results.
In actual practice, this
strategy usually fails because many of these off-the-shelf software packages are closely correlated in their trading strategies and, therefore, don’t provide the needed diverse approaches to Forex trading.
Beyond just the adoption of automated trading and trading diversity, there is a counter- intuitive
proven both profitable and risk- minimizing investor.
approach for
the individual
This approach suggests that one observe multiple
trading models
and resist the temptation to jump on the bandwagon when a model is showing a winning trend. Clearly, an approach that suggests ignoring a
that has
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97