There is some information regarding forex that is legitimate out there too, but I would say 90% of it is hype.
Nevertheless one of the exciting things about the forex market is.
1)Fees are limited only by bid-ask spreads meaning the percentage of the trade that costs you in commission is the same if you have $10 or $10,000,000. There are some exceptions as institutional clients and commercial interest get much better deals, and shopping around for the right brokerage firm is also very imporant.
2)Contract sizes are customizable, meaning you don't have to risk a full contract per trade, but instead can risk .01 per trade, also helping level the playing field for the low funded.
3)You can work 9-5 and still get home and trade if you'd like as the markets will still be open somewhere.
4)Trading Robots! They can trade while you focus on trading elsewhere and trade while you sleep.
The 4th one is very unique and interesting. Basically if you can develop a trading system, you can use what's called "expert advisors" to have them automatically advize or even trade the trading system while you sleep. Unfortunately this is where a lot of hype comes in because people will "curve fit" data and find a system that WOULD have worked very well in the past, but going forward in the future, may fail completely. Or even worse, they will develop a strategy where position size is increased as you lose, and backtest the data on whatever currency pairs over that time fits the strategy the best.
Any strategy that increases position size as you lose (unless it's rebalancing), is a complete and utter risk of blowing up your entire account. The probability of losing enough trades in a row to do so may be very small, but over enough trades and conditions it certainly will happen, much like it did with long term capital management as illustrated in the book "When Genius Failed".
Long Term Capital Management (LTCM) is an interesting case study in aggressive mechanical trading with promise of low risk, high reward trades.
A failure to understand "gamblers ruin" along with high leveraged and a failure to truely appreciates the risks of failure really played into the collapse. Effectively LTCM leveraged heavily to profit off of arbitrage, but learned the hard way that the "risk free" interest rate of Russia wasn't really "risk free" in reality. If they had strategically planned.
That's another subject entirely, but it's important to understand when you see the robot trading equity curves that look so amazing and impressive that most likely there is much greater risk than you may imagine due to the existance of leverage and possibility for outside events.
Nevertheless, there are plenty of system trading strategies that have done well over time and that likely will continue to do well. There are various simple signals that can provide the ability to take advantage of longer term inflows of capital, or that attempt with a close stop to capture swings that may last a few days.
The key is to understand that money management strategies are very important as is position sizing strategies. Make sure you have the strategy let profits run and cut losers quickly enough to bennefit. You should have maybe a 2 to 3 to 1 ratio of profit target to your loss (or much higher in some trend following instances) and win percentage high enough to profit. If you have a 2 to 1. Profit factor you must win 1/3 times or 33% to break even. 3 to 1 and you must win 1/4 times or 25% to break even. But factor in additional risks and bid-ask spreads and I would aim for 35-50% profitable with that ratio, and/or else have a system to occasionally let profits run longer and larger.
It may be possible to have very low win/loss ratio (also called profit factor) and still be profitable if win percentage is well over 50%. However, such a strategy also means that as soon as you stop seeing success over 50% that it will be a big loser. Conversely, a strategy with the win percentage UNDER 50% can become a loser if the stops aren't working because you get a big gap down or start taking profit too soon. Of the two, in forex trading when it's open to trading most of the week, I believe a strategy of a profit factor well over 1 is much better and safer.
In either case, having a small enough position size and large enough cash reserves is still vital to letting the system work and making it profitable. Without it, it is only a matter of time before your account turns into the wrong side of the Long Term Capital Management equity curve.
As mentioned before, I am still trying to figure out forex trading, but believe that by understanding money management and being able to hold onto a trend and follow technical analysis and obey the very disciplined money management principals I planned for that I will have an edge.
Robots are basically just going to follow any programmed strategy without error (unless it was programmed incorrectly to begin with). That is a huge advantage as if you can identify the market conditions of a particular currency pairs (trend up, trend down, sideways...) and volatility (whether it's high volatility, low volatility or average volatility) and determine what strategy works best (trend following with tight stop, wide stop... or mean reversion strategies scalping and breakouts) and what "robot" is best for that environment, you can simply set the robot up to trade, maybe monitor the 13 week trend and volatility of that market periodically make changes and keep the system going with the position size small.
Just a few simple concept trading systems should run well enough over time. Just set and forget and adjust on the weekends if neccesary.
I think this is a huge advantage potentially as you can focus your efforts on trading stocks and options and evaluating the market while still having trades that provides you with good overall money management as currency typically has a low correlation to stocks, particularly if the timeframes are different.
You can protect yourself against systemic risks by structuring it that way from the start and still sleep at night. If you are concerned with the collapse of the Euro and/or Yen over the next 5 years, for example, make sure any trading system is only set to "short" the euro and/or Yen if the setup occurs, so that way you aren't exposed to the large risks that perhaps aren't properly priced in.
You can trade the 1 minute charts for signals, the 5 minute, 15minute, 1 hour or daily or weekly, giving you multiple options for trades both longer and shorter term. You can even overlap the short and long term timeframes.
I would demo trade and track any system for an extensive period of time. The system should be both backtested and "forward tested" (tested after the back test is complete) to see if the results independent of the curve fitted results are adequete. The "forward test" is more realistic, but of course takes more time to complete.
The other considerations are the carry trade where you either collect interest or pay interest as a result of the spreads in interest rates between the two currencies. You can set up whatever system for various currency pairs, but be sure you understand and monitor these costs and realize that because the carry trade can become so popular, a liquidation and change of trend can potentially lead to volatile and very strong selling forcing a lot of people out that were just in it for the carry trade.
90% of the considerations you do regarding the system should be done ahead of time. Once you have the system chosen, you need to just let it work. Demo trade will allow you to have "zero skin in the game" but still monitor theoretical results and better understand the system. Once you are comfortable with hundreds of trades on "demo" or thousands if it's running on a 1 or 5 minute chart then you might consider the prospects of using real money, if you believe you can handle the risks.
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