Profitable Forex Strategies and Techniques
Windowofworld.com – This article is mostly for people who already know what the Forex market is and at least know the basic concepts. If you don’t have a clue about what this market is or you’ve never heard of, I’ll give you a very brief explanation of bellows.
Forex is an acronym for the Foreign Exchange Market. This is the largest and most liquid market in the entire world today. Exchange one to three trillion dollars on Forex every day. That’s a very large amount of money. There is no stock market exchange from any country approaching this.
This market is very big. This is a sea of money full of sharks and dangerous waters, but it is also the only market where you can at least hypothetically generate $ 1,000,000 in two weeks starting with only $ 1,000.
I say hypothetically because what often happens is people blindly risk their money on Forex without knowing anything about it and they lose their clothes. That’s why I say to you: be careful! This market is profitable, but you need to learn the basics well, do homework, and trade lots of demos.
Remember that 95% of traders lose money, 5% succeed, and less than 1% get rich on Forex. The nice thing about this market is that you can make money without creating any products or services, selling anything, or advertising. You only trade cash and get paid depending on your knowledge and expertise.
This is a market where banks, transnational companies and individual traders exchange one currency for another. I talk about the Forex market. You can trade with a very large leverage of 400 to 1, meaning that for every dollar you have to trade, you can trade 400. For example, if you have $ 1,000 in your account, you can trade as much as $ 400,000.
This is dangerous. The most experienced trader will not use high leverage. On the other hand, high leverage can be good if you learn how to use it as you wish. However, that is enough for the basics. If you want to learn more about how this market came about, its history and so on, then read my other article.
Now let’s talk about strategy and how some traders make money on Forex. Let’s start by saying that what works for me might not need to work for you. Risk trading. That fact. But in the end I found a number of strategies that can give winners to novice traders.
Forex trading is not as easy as most people think. Today you might make a lot and tomorrow you lose 40% of your initial capital. Beginner traders often make the same mistakes over and over again. I will name a few of them bellows.
1. Don’t look for holly grail trading.
This is for people who are afraid of losing or are too greedy and want to get rich quickly. Even when it seems so, the Forex Market is not a place to get rich quickly. Yes, you can make a lot of money from time to time and yes you don’t have to sell anything, or make or advertise any product. You still have to learn a lot about what makes this market move fast and what drives currency prices plus how to manage your money effectively so you don’t lose your shirt.
Many novice traders spend a lot of time searching for the perfect strategy that will allow them to always win-win and never lose. They want to benefit because they cannot stand losing and / or they want to make too many (millions) quickly so they can retire quickly and buy luxury homes on a beautiful and remote tropical island. That did not happen.
Don’t waste your time. There is no trading strategy that allows you to get guaranteed profits. Trading is very risky. That is why it is very profitable. Remember: “there is no risk, there is no reward.” So, don’t try to win every trade. It is impossible. There is no way to get rid of the fact of uncertainty. What I mean is no matter how effective your trading strategy is, sometimes it will fail and you must be prepared to face this reality.
By not trying to find the perfect strategy that turns you into a millionaire quickly, you will only save a lot of your own time and effort. It does not exist. If you find it, please don’t tell me about it. First, I will not believe you. Second, I don’t need it. You will find the bellows why I say that I will not need it.
2. Use technical analysis and fundamental analysis.
When I started trading, I did not believe this. I want to find a strategy that consists of managing money only (which I explain the bellows). It is not good! Money management is important but you still need the other two. You determine (“predict”) the direction of the market depending on how effective your technical and fundamental strategy is.
Mastering technical analysis is the ability to predict future price movements by analyzing past price data and graphic patterns. You get a graph of a certain currency. Check the data you observe and are based on your knowledge of technical analysis that you “predict” with a certain level of accuracy at which the market will move.
Many brokers allow you to add technical indicators to the chart when you trade. You can try this on a demo account and see how well you can determine the future price movements of the currency you plan to trade. One such broker is www.oanda.com.
There are many technical indicators. I do not know which is more effective for you. Every trader is different. This is something you must find for yourself. There are no hidden secrets or magic formulas for Forex trading. This is what you do every minute when you are in front of the graph and check the news that really matters.
The secret is in your overall knowledge and decisions. This is complemented by experience and practice. If you open an account with one of these online brokers, you can trade on paper before you trade with real money, so you can learn and practice before taking any capital risk.
Let me tell you about some technical indicators that you can use. You can use MACD (Movingvergence Convergence Divergence), Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA, Elliot Waves and many others. There are actually many technical indicators but these are the best known and used.
When you add technical indicators to a chart, the broker’s software will automatically carry out mathematical calculations to reveal interesting facts and patterns about the chart that you cannot easily see without these indicators. You can use technical indicators to create your own technical system.
These systems will never work 100% of the time, but if they work 70% – 80% might be enough. That’s because you can control your risk with money management techniques as I explained the bellows.
To further increase your probability of winning and reduce your chances of losing on every trade, you can use fundamental analysis. I think most traders choose one or the other but many traders use both.
Fundamental analysis is to trade news. What happens to the currency economy of the country you are trading in? What is the unemployment index? Did something suddenly happen that could drastically affect the price of the currency?
Trading news is another effective way to “predict” where the market is going. Many online brokers offer you links with important financial news. For example www.oanda.com has this feature. You can also find financial news on the following website:
3. Use money management strategies.
You need money management techniques. This is what makes you or breaks you. Well, most traders invest too much of their trading capital in every trade. That is as follows. . . “Hoping to produce too much and you will produce too little, hoping to produce too little and you will produce too much.”
What does it mean? This means that if you try to make a lot of money on every trade you will lose your shirt. If you expect to make a little on each trade and you add profit, you can make a lot of money in the long run.
The first rule of money management says that you cannot risk more than 1% of the money you have in your account. You control this risk with stop loss and limit orders. When you start trading, this might seem like a small profit, especially if you start with a little trading capital. On the other hand, if you add some or all of your profits, you can increase your account exponentially from time to time.
The magic of compound interest is truly amazing! This is the way most of the wealth is created on the financial markets, little by little. If you risk your money, you might lose it quickly.
Many traders do the opposite. Imagine you open an account with $ 5,000 and you enter a trade for $ 1,000. Let’s say the market moves against you and you lose that $ 1,000. Now you have $ 4,000 in your account. You think that prices for currencies are too low, so you have to recover. In fact you are quite sure that it will return.
Then you invest $ 1,500 to recover from your previous losses plus make a profit of $ 500. The market moves again against you. Keep going in the same direction, something you would not expect. What happened? Now you have $ 2,500 in your account. That’s 50% of your initial trading capital. It will be very difficult for you to recover from the loss.
On the other hand, if you risk 1% of your money on each trade, you will have $ 4,900 in your account after that initial loss. It will be easier for you to recover from that trade.
The second rule of money management is to expect to always receive more benefits than money you risk losing. This can be achieved through limits and stop orders and trailing stops.
For example, if you expect to earn 25 pips in every trade, then you place a stop order at a 15 pip bellows or above your entry price. A better way to have a greater expectation ratio is to use trailing stops as I explained above. A trailing stop allows you to reduce losses and let your winner rise.
This is a basic technique that must be used by successful traders to produce consistent profits on the Forex Market. This is basic information, but I realize that many people out there don’t even know what Forex is, so I don’t want to go into more complex strategies here. You will find information about complicated and sophisticated Forex strategies on my website.