Tips for becoming a successful Forex Trader

TRADING FOREX LIKE A PRO

In this article we shall be talking about Forex. Because of the high risk nature of currency trading, it is important for one to be armed with the right information before he opts to invest hard-earned capital for speculations. The right knowledge about any venture in life makes the difference. Success is always guaranteed when one takes out time to study the underlying principles of anything. This is indisputably, so long as the right information is applied.


Becoming a successful Forex Trader has never been any easy for some. This is because it demands consistency, dedication, patience and self control as it were. One might be surprised to observe that, although forex has come a long way, so many people still have not heard or do not know what it is all about.

Forex and CFDs are leveraged products. They may not be suitable many, especially newbie’s as they carry a high degree of risk invested capital as one can lose more than his initial investment. This is why I believe that this article will serve as a good solution for any one who wants to have a successful career in currency trading.

Forex trading demands the development of a sound trading strategy. Many people jump straight into trading hard earned money without having any form of strategy in place, only to end up blowing away their account. Developing your strategy must be done using a demo account – which is made available by many brokers. You only have to try them out on a live account after you are convinced that you have perfected it (or them) well.

Before proceeding further, it is apt to state the laws that must guide you in you chosen career as a forex trader. These laws include, but are not limited to:

1. Have a Plan: Not having a concrete plan means you plan to fail! Before you ever trade, do have a good plan. This include good account management practices like putting in place your “Stop Loss” and ”Take Profit” where appropriate, setting your entry and exit points correctly, knowing when to enter and exit a trade etc.

Aside having a plan you must follow it to its tiny and last details, religiously at that. Never expose your account too much by over leveraging your capital, no matter how juicy the profit prospects appear to be. I suggest you go for a lower leverage, say 100:1 or 200:1. Of utmost importance is this, try out your plan and trade strategy on a Demo account provided by most trading platforms.


2. Never go against the trend: Always go with the trend in the market per time. Avoid bucking against it as it is always your friend. Hence, when the market is bullish, go long (buy); when bearish, go short (sell). However, always wait for the trend to begin – i.e. the point of return – before you join the trend. Being able to identify the points of support and resistance will be of good benefit in this case.

3. Never over-trade: Avoid placing so many trades in a day. Learn to apply risk-reward ratio at all times. Winning 25% 0r 33% (ratios 3:1 and 2:1 respectively) daily or as may apply is okay, except you are capable of going for 50%.

Take for example, if you go short on dollar price 1.5950 and set your stop loss as 1.6005 and limit at 1.5840, if all goes well or bad, it means you are willing to risk 55pips for a profit of 110pips. This is clearly a 2:1 (110:55) risk to reward ratio.

4. Greed: Never attempt to take all the profits. Be satisfied with what you make per trade.

5. Patience: Be patient. Never jump into a trade based on emotion or for the sake of doing so. Forex trading is more than gambling.

6. Mentoring: get a good mentor to trade with. Just like a Medical Doctor or Lawyer goes through a period of tutelage, forex demands you trade with an experienced trader so as to learn more.

7. Be abreast with the news: Always keep an eye on the news. You can link up to www.forexfactory.com for updates.

8. Choose a good platform: You can use platforms that give you option of a demo account or free live account with a free $5USD to trade with.
Another good broker I do business with is Hot Forex or HF Markets. They even give you such assistance like free trade signals (when to buy or exit a trade). You can get your free demo account or Live trading account with as little as $24 US Dollars

Technical Indicators mastering, a great help for traders

Here are some indicators that will be useful for you:

Stochastic Oscillator: The Stochastic Oscillator Technical Indicator compares where a security’s price closed relative to its price range over a given time period. The Stochastic Oscillator is displayed as two lines. The main line is called %K. The second line, called %D, is a Moving Average of %K. The %K line is usually displayed as a solid line and the %D line is usually displayed as a dotted line.

There are several ways to interpret a Stochastic Oscillator. Three popular methods include:

· Buy when the Oscillator (either %K or %D) falls below a specific level (for example, 20) and then rises above that level. Sell when the Oscillator rises above a specific level (for example, 80) and then falls below that level;

· Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line;

· Look for divergences. For instance: where prices are making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs.

Parabolic SAR: This Trend Technical Indicator was developed for analyzing the trending markets. The indicator is constructed on the price chart. This indicator is similar to the Moving Average Technical Indicator with the only difference that Parabolic SAR moves with higher acceleration and may change its position in terms of the price. The indicator is below the prices on the bull market (Up Trend), when it’s bearish (Down Trend), it is above the prices.

If the price crosses Parabolic SAR lines, the indicator turns, and its further values are situated on the other side of the price. When such an indicator turn does take place, the maximum or the minimum price for the previous period would serve as the starting point. When the indicator makes a turn, it gives a signal of the trend end (correction stage or flat), or of its turn.

The Parabolic SAR is an outstanding indicator for providing exit points. Long positions should be closed when the price sinks below the SAR line, short positions should be closed when the price rises above the SAR line. It is often the case that the indicator serves as a trailing stop line.

Moving Average Convergence/Divergence: Moving Average Convergence/Divergence is the next trend-following dynamic indicator. It indicates the correlation between two price moving averages.

The Moving Average Convergence/Divergence Technical Indicator is the difference between a 26-period and 12-period Exponential Moving Average (EMA). In order to clearly show buy/sell opportunities, a so-called signal line (9-period indicators` moving average) is plotted on the MACD chart.

The MACD proves most effective in wide-swinging trading markets. There are three popular ways to use the Moving Average Convergence/Divergence: crossovers, overbought/oversold conditions, and divergences.

Cross over: The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the Moving Average Convergence/Divergence rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero.

Overbought/oversold conditions: The MACD is also useful as an overbought/oversold indicator. When the shorter moving average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely that the security price is overextending and will soon return to more realistic levels.

Divergence: An indication that an end to the current trend may be near occurs when the MACD diverges from the security. A bullish divergence occurs when the Moving Average Convergence/Divergence indicator is making new highs while prices fail to reach new highs. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.

Relative Strength Index: The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100. When Wilder introduced the Relative Strength Index, he recommended using a 14-day RSI. Since then, the 9-day and 25-day Relative Strength Index indicators have also gained popularity.

A popular method of analyzing the RSI is to look for a divergence in which the security is making a new high, but the RSI is failing to surpass its previous high. This divergence is an indication of an impending reversal. When the Relative Strength Index then turns down and falls below its most recent trough, it is said to have completed a "failure swing". The failure swing is considered a confirmation of the impending reversal.

Ways to use Relative Strength Index for chart analysis:

· Tops and bottoms

The Relative Strength Index usually tops above 70 and bottoms below 30. It usually forms these tops and bottoms before the underlying price chart;

· Chart Formations

The RSI often forms chart patterns such as head and shoulders or triangles that may or may not be visible on the price chart;

· Failure swing ( Support or Resistance penetrations or breakouts)

This is where the Relative Strength Index surpasses a previous high (peak) or falls below a recent low (trough);

· Support and Resistance levels

The Relative Strength Index shows, sometimes more clearly than price themselves, levels of support and resistance.

· Divergences

As discussed above, divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the Relative Strength Index. Prices usually correct and move in the direction of the RSI.

Please note that the above might not be applicable with all brokers, but they are some standard indicators you can combine to break that bank with your netted profit.

 
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