On any Forex chart, you’ll see repetitive patterns that you could have traded for profit. This article is about spotting these repetitive patterns – and using technical analysis to create big consistent gains from them.
Use Forex charts and follow these 3 simple tips for success:
Step 1. Understand Support and Resistance
If you want to make money in Forex trading, you need to understand support and resistance - and incorporate it into of your Forex trading strategy.
An important point to keep in mind is to only trade valid support and resistance - as market participants consider these important.
Firstly, forget about using support and resistance in short time frames – it doesn’t work. All volatility is random in short time frames - so if you’ve been thinking about day trading - forget it.
You need to look at your Forex chart, and see support and resistance that’s held for weeks or months - and already been tested several times. As a general rule look for five tests or more.
You then need to decide whether support or resistance will hold, or break - and this is the difficult bit for any currency trader.
Step 2. Trade with Momentum
Most currency traders simply see prices approach support and resistance - and buy or sell - hoping the levels hold. Try this, and you’re sure to lose money. You’re guessing, and hoping - and the Forex markets will wipe out the equity of any trader that does this!
To be successful with your currency trading system, you need to calculate the odds of levels holding or breaking. This means looking closely at the momentum, and strength of price.
For example, if price momentum weakens into resistance, then you can sell. If however, price momentum accelerates into resistance, then you should hold back - and wait for the break to execute your trading signal. This way you’re always trading with price momentum - and there are several indicators you can use.
Two of the best indicators are the stochastic and Relative Strength Index (RSI) – which we’ve already covered in previous articles.
If you use stochastic and Relative Strength Index in association with your Forex charts, you’ll gain a huge advantage - by getting the odds in your favour.
Cutting Losses and Running Profits
Cutting loses is actually the easy bit - you place your stop when executing your trading signal behind the breakout point - nice and simple.
The hard bit is running profits - most traders simply cannot accept big profits. This may sound odd, as all traders want to run profits. However, few traders can manage to run profits - due to human nature. Why? Because Forex traders are so obsessed with not losing money, they can’t make big gains.
A trader will see a profit on his Forex charts and get excited and nervous at the same time – excited they’ve made a profit - and nervous they might lose it!
The Bigger the profit becomes the more tempted they are to take it - so they move their stop up to close - and gets taken out by normal market volatility. The trader may also snatch the profit, when the temptation becomes too much. Do either of these and of you’ll never make big gains.
You need the courage to hold your stop back - and accept dips in your open equity, as part of Forex trading. Sure, it’s not nice losing a thousand or more per day in open profit - but you need to keep your eyes on the bigger prize!
Look at any Forex chart, and you’ll see trends that can, and do, make Forex traders $10,000 to $50,000 – maybe even more. You just need the courage to hold on.
If you check your Forex charts for valid support and resistance, and trade with momentum on your side, and have the courage to run your profits – then you’ll make huge currency trading profits.
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