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The one thing every foreign currency trader is incessantly searching for is the proverbial 'Holy Grail' of foreign currency trading. They believe that there is this trading strategy or system that has clear cut rules that can make forex trading easy and effortless while landing them on the profit side on balance in the long term. Almost every retail forex trader out there keeps on hopping from one trading style or system into another hoping they will one day stumble into the much sought after but seemingly elusive forex 'Holy Grail'.
Unfortunately, all of the efforts to discover the grail have merely ended in vain. There were times when a seemingly reliable and successful trading system would crop up only to falter later on. The unsuccessful quests for the forex 'Holy Grail' have become the butt of jokes in most foreign currency circles and forums such that traders have become cynical towards any trading system that purports to be the 'grail'.
Does the Forex Holy Grail really exist?
The short answer is yes. In fact, it is staring you right in the eye every single trading day yet you choose to completely ignore it. The problem with traders searching for the Forex Holy Grail is they actually don't know what they are looking for. In their quests, they either build strategies based on limited historical data or they use too many indicators that make their strategies more confusing than useful. At any rate any of these efforts are doomed to fail mainly because they are looking for the grail in a different direction.
No matter what or how many indicators you combine together, no matter how well fitted they may be to a set of historical data, the effort will just the same be an exercise in futility. Why? Because the foreign currency market is such a highly volatile market and this persistent and permanent flaw can't simply be captured by any combination of technical indicators which are all based on the normal distribution curve.
The Basis of the Forex Holy Grail
The basis therefore for the proverbial forex Holy Grail that will serve as your indomitably profitable trading strategy should logically be the permanent and persistent flaws in the foreign currency market (which in reality deviates from the normal distribution curve). This includes two market phenomena - (1) The market's tendency to overreact to current, future, or perceived market influencing factors with the prices of currency pairs rising or falling excessively driven by greed and/or fear of the traders; (2) The market's tendency to return to its average price level after pulling away from it.
In short, the Forex Holy Grail must be one which can take advantage of the unpredictability of the highly speculative foreign currency market by exploiting its persistent flaws. And, the earlier you accept this, the better it will be for you. For now, you can set aside all your favorite technical indicators and concentrate on mastering how to muster the market flaws to your advantage.
The Forex Holy Grail Blueprint
Because of the highly speculative nature of the foreign currency market, it normally produces much more excessively wild price swings (both positive and negative) than the normal price swings that can be expected from normal market distribution models or simple market randomness. In other words, it offers more opportunities to make or lose money.
The forex Holy Grail blueprint can be as simple as having tight stops that will minimize losses during excessive adverse price swings while maximizing returns by targeting wide profit targets during excessively positive price swings. The strategy is simple and straightforward and can even be done even without regards for trend direction or resistances and supports. By keeping your stop loss tight, you'd be able to limit your losses and live to trade another day. You may target returns of 55 cents to every dollar you risk by simply refraining from taking profits until the returns are at least 50 times the risk you took. You can protect your position further by adjusting your stop losses to break point after gaining some ground. The market has the tendency to retest your entry point and making the adjustments protects you from being whipsawed.
Of course, this simple strategy has its pitfalls too but with further experimentation and combining it with other market signals will help you fine tune this blue print.
Content Credit: http://www.mtrading.eg/
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