What is the best way to trade Forex? Is it best to let an automated system trade for you or is it best to learn a trading system that you have devised on your own? This is one of the questions that many new traders to Forex face.
You have probably read many Forex posts that entice you with how easy it is to trade with a robot or automated Forex trading system. Nothing comes easy in Forex although the opportunity is huge even for the small retail trader like you and me. The primary reason that robots don't work is that they place too many trades, work in conflict with other robots, or they suck out the liquidity in the market from overuse.
The bottom-line? They are short lived and by the time you purchase them they are often useless.
No one can program a system to trade the markets because most of the time the markets are efficient meaning that everything known is priced in and price fluctuations are minimal. Even if a trade is entered, the likelihood of there being enough momentum in the right direction is extremely small.
The best traders are large banks and hedge fund traders who find areas where there are inefficiencies in market prices. You and I should do the same thing.
Where are these inefficiencies and how do you learn to exploit them?
They are typically best found where momentum changes. Momentum comes in all sizes; for example 5 pips, 10 pips, 100 pips or 1000 pips. The key is knowing when momentum will happen.
Follow these steps to finding inefficiencies in the market.
1. Find a sound trading system - How you ask? Do some research on momentum. Momentum is measured using oscillators like RSI or stochastics. Momentum in the form of negative and positive reversals or divergences can create momentum changes where you can make successful trades.
2. Find a mentor. Find someone who trades successfully and who knows the ropes.
3. Find time to trade and learn. Although it is easy to get into Forex, it is easy to lose money as well and fast. Find time to practice and time to learn new trading concepts.
If you start with these steps you will become a profitable trader. Try not to be enticed by ads for robots and auto trading systems. Make a commitment to learn a real trading system that takes advantage of market inefficiencies. You will be glad you did.
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