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If your resources are limited, then your best course of action is to keep your trading as simple as possible. For this reason, many Forex novices commence their career by focusing on the EURUSD. As this pair is the most traded in the world, there are large amounts of analytical information and advice readily available 24 hours a day that are produced by global Forex experts.
Just trading one currency pair at a time can be both mentally tiring and extremely time-consuming with the resources that you may have at hand i.e. just yourself and a standard PC. Forex trading can be an intense activity requiring very large levels of mental concentration.
On your own, you will have little chance of working on this activity 24 hours a day for any great length of time. You will just start to make more costly mistakes. As such, you will need a technique that will allow you to switch your trading off, for whatever length of time required, without worrying that you will return to a crushed position. Later articles in this course will show you how to do this safely.
To achieve your goal of trading Forex profitably, you first need to develop a trading strategy which comprises a set of rules that can be readily adhered to over the long haul. You then need to acquire a very good understanding of money management principles that will help you control and restrict the impact of unavoidable losses.
Many Forex traders have difficulty understanding that their occupation involves a tremendous amount of risk. Good Money Management skills are essential in order to cope with this very serious problem. Basically, money management strategy is a statistical tool that helps control the risk exposure and profit potential of every trade activated.
All types of trading are unpredictable and even sure-fire deals can turn surprisingly bad in a matter of moments. This is especially so with the Forex Market because of its size, complexity and volatility always means that a sufficient number of active changes are present capable of affecting the values of any currency pairs.
Forex trading does not contain any easily accessible secrets that will bring you instant success. You will soon realise that you can only develop profitable Forex trading strategies through your own hard work which will undoubtedly include the study of other people’s Forex experiences. Over the years, many traders have designed a vast number of Forex strategies to assist them in selecting entry and exit points for new trades.
Forex Market tracks the Stock Market, which in turn, responds to global economic events. When the Dow Jones Index rises, the correlated EURO and GBP tend to rise whilst the USD and YEN usually fall. As you undoubtedly know, the Stock Market falls in response to bad news whilst it rises on good. Forex trading systems are designed using two main elements which are Fundamental analysis and Technical analysis. Ideally, both should be used to some degree or other when creating a trading strategy and an example of one is as follows:
1. Locate Economists who have a good track record in predicting events that affect the Stock Market.
2. Compare their fundamental forecasts against the technical charts of relevant currency pairs for synergy. This is best done using the hourly time frame or longer because the associated statistics are far more accurate than those of shorter time periods. In addition, they provide a much clearer overview of the larger picture as technical analysis essentially is intended to examine currency prices over a period of time to try and identify trends and patterns.
3. Any clear correlation, found during step 2, identifies possible ENTRY or EXIT points for a BEAR or BULL channel.
4. If 3 is positive, then enter a trade.
5. Monitor the trade for possible reversals and exit points using both technical and fundamental analyses.
One of the main cornerstones of your new Forex Trading System will be a method or technique that can help you select the entry and exit points of all your trades. There are a large number of Technical Indicators that can be used to assist you in achieving this task including Stochastics, RSI, Bollinger Bands, MACD, Moving averages plus many more.
The Forex Market with anywhere near 100% accuracy, a recommended way forward would be to select one Technical Indicator at a time and then to determine its win:loss ratio and expectancy value as will be shown later in this course. There is a great amount of free information on the internet about Technical Indicators. Here are brief descriptions of two of them:
1. Simple Moving Average (SMA)
This indicator is calculated by dividing the sum of the past N period closing prices by the number of periods N. This is a lagging indicator with which traders try to use past price data to forecast future movements. The moving average is more accurate when used with longer number of periods. However, this also has the disadvantage of making it slower to react to new price changes.
2. Exponential Moving Average (EMA)
The Simple Moving Average is a very good tool for quickly establishing Forex market trends. However, it does not cope very well with rapid price movements (spikes) because it gives just as much emphasis to older price data as to new. As traders are recommended to base their technical analysis on the latest data, the Exponential Moving Average indicator provides an improvement because its formula places more emphasis on recent currency quotes.
