Published On: Mon, Dec 3rd, 2012

Identifying the Real Forex Odds and Beating Them

To achieve success at Forex, you fundamentally need to complete a sequence of consecutive successful Forex trades as often as possible. What does that really mean and is it difficult? Let us try and answer these questions by considering the following analysis. For each trade you open, consider that you will need to target an achievable profit of 50 pips that may require you to trade, on average, for about 4 hours.

In addition, you will then need to obtain a consecutive sequence of successful trades in order to obtain a good profit e.g. 20. This study, therefore, implies that you will have to trade Forex for about 80 hours in order to achieve your targeted objective. This is both a long time and a very daunting prospect as Forex is anything but stable and is, in fact, capable of producing brutal, unforgiving and vicious movements at any given time without warning.

In addition, each new trade must be considered as an isolated event because Forex does not recall if you won or lost money during your previous ones. So and in conclusion, you must develop a mindset that will allow you to produce a Forex trading system that should, at least, be capable of overcoming all these difficulties. Unfortunately, traders are often readily distracted from this task because they are constantly blitzed by internet adverts, emails and the general media with claims that staggering quantities of money can easily be made by simply applying the seller’s new Forex strategy or product.

Specifically, Forex trading is simply not a 50:50 bet. You cannot do Y and get Z every time. Forex Trading is mainly about beating the odds inferring that you must apply a series of structured and well-tested rules in selecting each new trade after you have determined the chances of it resulting in success. Essentially, you would expect making money on Forex should be a relatively easy task. After all, Forex can only move in a very few limited directions, which are upwards, downwards or sideways.

At the start of each day, you should just need to ask questions such as ‘will the dollar fall or rise today?’ In addition, as you should regard this as just a black and white question, it should be quite simple to answer. So, what is the problem? You will soon realize, however, that the above question is just starter and soon many more will spring up that also need answering. In addition, you will find that they will become more abstract in nature. For instance, you will need to know which currencies the dollar will rise or fall against? Can you detect any long-term trends that the currency pairs are forming? How will you determine whether the dollar will move far enough against another currency so that you will be able to record a decent profit?

You will also need to worry about any major fundamental news items that could be released during the day that may seriously influence the performance of your trades. In particular, you will have to be careful that any sudden reversals are not strong enough to stop-out your profitable positions. Unfortunately, these questions can become increasingly more difficult to address as you do not possess mystic powers.

You may find even more disconcerting is that experienced traders make costly mistakes as well.  However, all is not gloom if you understand that you do not need to be successful one hundred percent of the time. In fact, you do not even need to win more than you lose, but you do need your winners to be consistently bigger than your losses in order to attain a profit over the long haul. How can you achieve such an objective? Unfortunately, your initial impression of just tossing a coin must go out of the window. You can deduce just from the above short analysis that Forex is anything, but black and white and is, instead, very complex.

As such, you must definitely not use guesswork or your gut instincts to make your trading decisions. In contrast, you will need to develop a trading strategy that is capable of producing profits for you. You can do this by using the technical and fundamental analytical tools that are provided by your Forex broker or other similar professionals.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.