If done right, trading forex can be a very rewarding and profitable experience, but if you don't know what you're doing, it can also cause you to lose a lot of money just as quickly as you'll make it! You need to know and master a few straightforward yet crucial things if you want it to succeed. In this essay, I'll go through how you can start trading and earning money by understanding a few straightforward but crucial concepts regarding forex.
Firstly...
You'll read a lot of articles telling you how important it is to understand a lot about technical analysis, various indicators, etc. This is not the case, though. In fact, using too many indicators can confuse you and make trading too difficult for you to handle. Bollinger Bands, RSI, ADX, Moving Averages, and MACD The majority of free charting software today offers a wide variety of indicators, of which these are only a handful. Many individuals will add a lot of these indicators to their chart, but they are not necessary. After all, rather than the other way around, the indicators move because of the charts (price). (Some people forget that obvious reality.)
What Indicators Should You Use, then?
Because I like to keep things simple, I only use the complete stochastic indicator when I trade and mark different points of support and resistance on my chart (if you're not sure what support or resistance means, don't worry; I'll explain this soon). I employ the stochastic indicator, and I usually save trading for when it displays a reading of 20 or less... or 80 or more! - A number of 20 or less indicates that the market is oversold and is likely to have a correction back up, albeit it may only be temporary. In contrast, a rating of 80 or more indicates that the market is overbought and is thus likely to decline.
What Are Resistance and Support?
When trading forex, support and resistance levels are very critical and must be considered. Support occurs when the market has historically declined to a certain level and turned around. Where the market has discovered "resistance" and shifted course is called resistance. Support and Resistance are crucial because they can have a role in the present. a significant role in the daily changes in the market.
For Instance...
A week later, or even two weeks or a month later, if the EUR/USD rose up to 1.8375 one week but then paused and reversed course, this may prove to be a critical resistance level since the market might rise back up to this level and possibly stall once more.
Is Fibonacci a Useful Concept?
One of the best trading techniques you can utilize, in my opinion, to create profitable trades, is the Fibonacci sequence. When a market trend—upward or downward—changes, Fibonacci retracements are applied. They can also be used to strategically put stop losses and take profits. They are utilized to provide strong entry points back into the market.
Fibonacci is crucial, therefore if you don't know about it or don't comprehend it, I advise you to learn more about Fibonacci retracements.
Ok... Enough background information, how do you trade and earn money?
Let's get right to it, then. How to profit from trading foreign exchange.
I'm going to try to make this as basic an explanation as I can, so let's get started without all the unnecessary technical jargon.
1) I pull up a chart (I typically trade EUR/USD), so I do so for the EUR/USD.
2) I overlay the Stochastic Full indicator over the chart (often found on a tab above the chart, or under the options, etc.).
3) I include a few points of support and opposition.
4) If I think it's necessary, I add fibonacci to my chart (Fibonacci works well when the market is more volitile)
5) For general direction (where I believe the market will go), I alternate between 1 hour and 2 hour charts. However, I utilize a 5 minute chart to actually find entry opportunities into the market and place trades.
6) I only want to make between 10 and 30 pip every day, and I look for minor profit targets of 10 to 20 pip (You DONT need a lot of pips to make good money in forex)
7) I watch for points of support or resistance to appear on the chart, and I check my stochastic to see whether it is displaying an oversold or overbought reading.
I only do that, and it works because it's straightforward.
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