The question posed in the title of this article probably never find a definite answer. It seems that the specificity of trade in the forex practically impossible to apply the methods known from investments in equities. If you ask any trader on the strategy used in the forex, you can be sure that you will receive detailed lecture on technical analysis. It seems that practically there is no other approach to invest in the forex.

Why is this so? In my opinion the main reason is gigantic leverage infrequently greater than 200:1. In such extreme circumstances it is impossible to invest in the long term, because even small, random movement of prices can cause huge losses in capital.

Despite these apparent difficulties in investing in the long term, a situation is not entirely hopeless. First of all, we must reduce the lever to the normal value of 3:1, and never exceed the above 10:1. Another way to reduce losses is to build a portfolio of currencies. For example if we believe that currencies such as AUD, NZD, EUR and will soon be strengthened and USD, JPY, CAD to weaken, sample portfolio can be as follows:

L AUDUSD
L NZDJPY
L EURCAD

Of course this just a technical example. I did not show any indication here of such a choice nor a fundamental or statistical. But I wanted to draw attention to the essential property of selection pairs. Namely the principle that a currency appeared only once in the whole potrfolio. So if I open long EURUSD it means that I shouldn't open another pair contanig EUR or USD. This principle is important for reducing potential losses by diversifying the portfolio, which consists of uncorrelated pairs.

Buying a basket of currencies, or create a portfolio allows you to withstand a number of adjustments during the duration of the investment. This approach also encourages the use of fundamental methods, for a particular currency (not a pair) and long-term investment is not possible without fundamental methods .

In my practice I use more then 3 pairs (6 various currecies) in one investment. I use very wide stop losses for each pair and one general stop loss for the whole portfolio. The choice of pairs depands only on fundamental analysis of each currency/country. This approach leads to really well results.

For technical purposes I use my own well defined currency indexes. They make possible to analyze a single currency in isolation from other and thus is similar to analyzing the equity markets.
The idea of currency index and its application to trading will be addressed in forthcoming article.