Forex Tips

Which way the price is heading? How far will it travel? How long will the trend last? Where is the bottom, top and what are the signs of a weakening trend?

These and many other questions form an essential part of any technical analysis.

There are some fundamental guidelines to be used in day-to-day trading:

1. Embrace the full picture of the market

Before turning your attention to a small time frame, sit back and look at a series of superior time frames: daily, weekly, monthly. Even if you’re not going to use them in your intra-day trading, you must be aware of the global tendencies in the market.

Imagine that you’re standing close to the highway trying to figure out in which direction most of the cars are heading. Then imagine that you’re looking at the same highway from the high hill — you’ll be able to see much more, and the answer will be laying in front of you.

2. Find the trend and follow it

Trends can be long-term (yearly, monthly), intermediate (weekly, daily) or short-term (hourly, 30 min, 5 min etc).

At any time, you should be able to work with at least 2 time frames. The longer frame will be used for finding trends, while the lower — for timing entries and exits.

Trading with a trend is always easier than trading against it. Professional traders would never attempt counter-trend trading without a good reason, most of the time, however, they will trade with a trend. For the rest of traders following a trend is undeniably the best & safest option.

3. Find Support and Resistance in the market

The best place to Buy the market is near support levels.

The best place to Sell the market is near resistance levels.

Instead of trying to catch the rallying market, wait till it retraces to test the nearest support. Buying such dips is the best way to minimize risks and get the most of each market move.

Same approach applies to downtrends: we want to sell at resistance levels when the price pulls back up to test the resistance.

4. Draw trend lines

The easiest and most effective way to work with support/resistance levels is by drawing trend lines.

A valid trend line should connect two peaks (two successive lows in an uptrend, or 2 successive highs in a downtrend). A trend line is confirmed if it’s been tested/touched at least 3 times. The longer it holds the stronger it becomes.

Trend lines don’t have to be always inclined, they can also be horisontal or flat — such trend lines are drawn through most distinctive and visible price tops and bottoms, creating horisontal levels of support and resistance.

5. Use daily High/Low

Make a habit to draw lines through Daily High and Daily Low every day.

A daily High always plays a role of a strong Resistance level.

A daily Low — strong Support level.

6. Use indicators

While the price is the best indicator, trading without any indicators is challenging.

Majority of traders use at least 1-2 indicators.

Indicators help to smooth out & transform market data into a more readable for traders form.

Using indicators requires knowledge. The more indicators you try, the more experience you gain. There are numerous indicators that look different, but use identical formulas, thus producing 100% identical signals. You don’t want to have 2 indicators that will duplicate each other.

7. Keep your charts clean

Don’t make the mess out of your charts by placing too many indicators on the screen. The more indicators you have — the more difficult it becomes to read charts, and, moreover, you’ll be struggling with making trading decisions, as too many indicators will inevitably lead to contradicting buy/sell signals.

8. Create a trading plan

Consistency in trading is achieved through a well planned execution. If you don’t have a trading system, it’s time to create one. Keep the rules simple, avoid the mess, and make sure that there is a logical explanation to everything you’ve planned.

9. Money management is everything

Risks is the #1 word in the investment world. We take risks every time we make trading decisions.

Forex is not an exception. In fact, Forex is one of the riskiest investments in the field!

When trading, the goal is to be prepared for every occasion. Hoping never works in the currency world. Market forecasts can offer some insight, but will never guarantee even the slightest accuracy! Only the real facts that happen here and now matter. Therefore traders should:

- balance the risk:reward ratio (keep your risks lower than your rewards, a minimal acceptable ratio is 1:2).

- place stops (every order should have a protective stop. Leaving trades unprotected can one day cost you everything).

- protect profits (the profits you earn should be protected. Don’t allow a winning trade turn into a losing one. Use trailing stops to protect profits while keeping a trade running to collect additional pips).

Protecting your trading account from major losses is the #1 goal in trading.

If you’re wrong about a trade, lose your opinion, but not your money.

If you find yourself in a situation, where you’ve made a huge mistake and your trade is in deep-deep trouble, close that trade as soon as you can. It might be your last chance to escape a total fiasco! Hoping is naive and useless! When the ship starts to sink, don’t pray — jump!

10. Know yourself

If you don’t know yourself well, Forex is an expensive place to learn that.

Know how you react to losses as well as wins, to anxiety and fear. Emotions play an important role in Forex trading. Being sure that you won’t be affected by emotions is naive. Controlling your emotions takes practice, a few bumps down the road are inevitable.

Besides, know when you’re tired or stressed, and whether this will have any effect on your ability to make trading decisions.

11. Know the markets

Bull markets — up trends — take long time to build, while bear markets — down trends — develop very quickly.

Traders say about the speed difference next: While bulls climb up the stairs, bears jump out of the window.

This knowledge is widely used by investors when planning new trades and managing profits and stops in up and down trends.

12. Study. Share. Improve.