Currency Trading System

The currency trading system that a trader uses to hedge currency risk in foreign transactions will be different from what he will use to profit when speculating on Forex currency rates. Companies that buy products made in other countries commonly need to pay in the currency nation of the seller. In this case the appropriate currency trading system revolves around using Forex options to limit risk in a specified currency pair. Currency speculators on the other hand can trade any and all currency pairs and do so in search of profits. While those seeking to hedge risk hope for limited volatility of the Forex market speculators look for market volatility as a way to increase profits. Our purpose in this article is to outline the currency trading system that a currency speculator may wish to use.

Where the Money Is

Many years ago a not too successful bank robber, Willie Sutton, was asked why he continued to rob banks despite spending a lot of time in prison when he was caught. His response is alleged to have been, “That’s where the money is.” The point of this example is that volatile markets are where the money is for the currency market speculator. The first part of a successful currency trading system in this case is to find out which currency pairs are most volatile or promise to show volatility in the near future. Traders can simply scan the market or can sign up for an alert service that will notify them when opportunity in the form of market volatility is knocking at the door.

Making Money

Currency markets can appear very chaotic but often have underlying organizing factors. The fundamentals eventually determine pricing so if one is willing to wait all that is necessary for a successful currency trading system is to do fundamental analysis of a Forex pair and buy or sell accordingly. One can also buy calls or puts on one currency with another and wait until the market moves in order to collect profits.

Not Losing Money

The famous investor Warren Buffet is quoted as having said that the first rule of investing is not to lose money and the second is not to forget the first rule. The same applies to a successful currency trading system. If you lose half of your trading capital on a bad day you do not get it back with a fifty percent gain. You need to double your capital after expenses. Smart traders use stop loss systems to get out of bad trades before they get worse. They take profits before profits turn into losses. Smart traders do not trade when they do not understand the market. Smart traders use a currency trading system that alerts them to opportunity and then take advantage of that opportunity. The rest of the time they scan for other opportunities. A good example of how to do this is with Japanese Candlestick signals. These simple signals are good indicators of upcoming market reversals. They do not occur every hour or even every day. Thus traders are not tempted to trade when the market makes no sense. Then when a signal such as the evening star predicts bear markets they confirm the signal, enter a trade, and exit with profits.