Learn How To Trade Forex Successfully – Getting started in the forex market often results in a life cycle that involves diving headfirst, giving up, or taking a step back to do more research and open a demo account for practice. From there, new traders can feel more confident opening another live account, experience more success, and even break even. This is why it is important to develop a framework for trading the forex markets, which we explain below.
Why do we focus on medium-term forex trading instead of long-term or short-term strategies? To answer this question, let’s look at the comparison chart below:
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A trader who sees trades open and close in a matter of minutes can take advantage of small price movements with large amounts of profit.
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Large capital and/or risk requirements are necessary to take advantage of small movements such as large amounts of forex, and spread costs are significant.
A trader usually chooses to hold positions for one or more days, often taking advantage of opportunistic technical situations.
Now, you will see that both short-term and long-term traders require a large amount of investment – the first type needs to generate enough profit, the other to cover volatility. Although these two types of traders are in the market, they are high net worth individuals, asset managers or large institutional investors. For these reasons, retail traders often succeed by using a medium-term strategy.
The framework in this paper focuses on a central concept: trade-offs. To do this, we will look at various techniques over a period of time to determine if a given trade is worth taking. However, note that this is not for a mechanical/automated trading system; Rather, a better arrangement. You can act on the signals you see or ignore them. The key is to spot situations where all (or most) technical signals are pointing in the same direction. These high potential business situations are usually profitable.
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We will use the free program MetaTrader to illustrate this trading strategy; However, many similar schemes can also be used. There are two basic requirements of a business plan:
Now let’s see how to implement this strategy in your chosen business plan. We will also define a set of technical indicators with their associated rules. These technical indicators are used as a filter for your trades.
If you use more indicators than what is shown here, you will create a false system that creates fewer trading opportunities. Conversely, if you choose fewer indicators than shown here, you will create a less reliable system that will generate more trading opportunities. Here are the settings we will use for this article:
Now you want to include the use of some subjective criteria, such as the following:
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The key to finding entry points is to look at all the indicator points at the same time. Any time frame signals should support the timing and direction of the trade. Here are some typical bullish and bearish entry points:
It is best to place an exit point (both stop loss and take profit) before trading. These words are kept in key positions and only need to be adjusted if the location for your business changes (often as a result of basics coming into play). These exit points can be in key positions, including:
Let’s look at some examples of individual charts using a combination of indicators to find specific entry and exit points. Again, make sure that any trade you intend to place is supported in all three periods.
Figure 2: The screen shows multiple indicators in the same direction. Photo by Sabrina Jiang © 2021
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In Figure 2 above, you can see that most of the indicators are pointing in the same direction. There is a bearish head and shoulder formation, a MACD, Fibonacci resistance and a bearish EMA crossover (five and 10-day). We also see that Fibonacci support provides a good exit point. This trade is good for 50 pips and takes place over two days.
In Figure 3 above, we can see several indicators that indicate a long position. We have a bullish engulfing, Fibonacci support and 100-day SMA support. Again, we see a Fibonacci resistance level that provides a great exit point. This trade is good for almost 200 pips in a few weeks. Note that this trade can be broken down into smaller trades on the hourly chart.
Money management is critical to success in any market, but especially in the volatile forex market. Often fundamental factors can cause currency prices to swing in one direction – prices swing in the other direction within minutes. Therefore, it is important to always limit your losses by using stop loss points and trade only when your indicators indicate good opportunities.
Anyone can make money in the forex market, but it requires patience and following a well-defined strategy. Therefore, it is important to first approach Forex trading with a careful, medium-term strategy, so that you avoid the big players and become vulnerable to this market.
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Does not provide tax, investment or financial services or advice. The information is provided without regard to the investment objectives, risk tolerance or financial circumstances of any particular investor and may not be applicable to all investors. Past performance does not indicate future performance. Investments involve risk, including loss of principal.
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Traders face a barrage of information when starting out in the markets – and sorting the wisdom from the nonsense can be the difference between success and failure. Should you risk 1% or 5% of your account per trade? Does RSI perform better than Stochastic? And is Bitcoin really a reliable store of value? It’s true that some topics are always debatable, but with the help of our expert analysts, we uncover the truth about Forex trading, the lies and the dark bits in between.
First, get to know the truth about your forex journey with our DNA FX quiz, which helps you understand what kind of forex trader you are.
“Business has less to do with funding and more to do with knowing what performance-related efforts are involved in” – Paul Robinson, Currency Strategist
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A financial background is useful for understanding how Forex and other markets work. However, skills in math, engineering, and hard science are more useful because they better prepare traders to analyze and act on economic factors and chart patterns. It doesn’t matter how much you know about the financial markets – if you can’t process new information quickly, systematically and focused, the same markets you thought you knew well will eat you alive.
Expert Tip: To prepare for business, focus on developing analytical skills rather than improving financial knowledge.
Trading is like running a business. To be successful, you need to learn from mistakes and keep rules to help protect your investment. As with any business, it’s important to have the right strategies on hand for different market conditions. Setting up a business is easy, and so is trading. Creating winning strategies and making money? This is the hard part.
Expert tip: It’s easier if you trade in advance
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