You’ve decided to give forex trading (or currency trading, foreign exchange trading) a go, there is no use just getting up in the morning and sticking on a trade or two and hoping for the best. This type of hap hazard approach will not give a consistent income from the forex market. You need what is called and ‘edge’.
What is and edge?
An edge is a set of criteria or a chart pattern that puts the odds of winning in our favour over a series of trades. It means that after this pattern shows up in the market there is a higher probability of the market moving in a certain direction over another. Or it may be that the market tends to move further in one direction than the other. Once we know that we have an edge in the market, we know that the numbers are in our favour and so long as we trade this edge over and over, in the long run we will make money. The critical thing to realise here is that its in the long run. Taking a sample of ten trades and finding out that eight were losers means very little about the effectiveness of the overall strategy. We need to look at a large sample of trades, at least one hundred, before we can decide how effective it is and to see the results it produces. This is because the sequence of winners and losers is random and there could easily be streaks of wins or losses.
You must have an edge in the forex market if you want to see results. But finding one that suits you is also important.
The correct forex strategy
First you must look at your circumstances and decide what type of trader you should be. If you have a 9-5 job its unlikely you are going to have the opportunity to trade and monitor the market throughout the day, even if you do, will your boss be delighted to see you looking at forex charts all day instead of doing their work? No I don’t think so. This does not mean you cant trade, even though you only have time in the evening and/or morning, so long as you have access to the internet and a computer you should be-able to find a trading strategy that suits you. This will mainly involve looking at daily charts, these are the charts that show a days trading as a single candlestick. You may then add an indicator to help with your decisions. Lets be clear at this point, your trading strategy does not need to be in the least bit complicated, in fact the simpler it is the better, it will make it more enjoyable and easier to understand. So many people make the mistake of making forex trading way more complicated than it needs to be and end up worse off than they were before.
If you don’t have a day job and decide you want to day trade or scalp, then you need to realise that day trading is quite a boring job! Sometimes you have to sit for hours before you get an entry signal. Because of this, if you are not totally disciplined you will find yourself jumping into trades you shouldn’t because you want to be a part of the action. This is one of the key reasons why traders fail trying to scalp or day trade.
Its best if you can master longer term trading first, this would be holding a position for a couple of days on average. Things move more slowly on higher timeframes, and you have more time to think. Day traders have to make decisions in split seconds. Also the less trades you take the less expenses you will have, because you wont be paying the spread so much. Its definitely the way to start trading, and if you become comfortable with swing trading, then you can try day trading and scalping.
Price Action
Price action is one of the simplest yet most effective trading methods there is. This usually involves a raw price chart and few if any indicators. What we are studying is the candlestick patterns, and single candlesticks like pin bars. Pin bars are a great way to trade, they are obvious formations, also called the hammer bar. Basically the show us that during the trading session price went on way and reversed and closed near where it opened. They show us that traders changed their mind about the market and decided to either get our, enter or reverse their positions. This reversal in the market often results in a few days movement in the opposite direction to the way the day started. I say often, but not always, some just fail completely. But they are a trusted edge in the market and are used by many traders and institutions. They work really well on the daily chart along with support and resistance and perhaps some moving averages. This is the main way in which I trade, and I have yet to find something that is more effective. One thing I said was price action is simple, but its not easy, it will take a while before you learn this type of trading technique as you will have to learn to use your discretion.
If you would like to find out more about the strategies I have talked about here today then visit my website at- www.forex-trading-uncut.com
There you will find tonnes of FREE information about forex trading and tips to help you succeed.
Until next time,
Safe trading,
John.
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