How to Learn Forex Trading for Greater Profits
Forex traders speculate on currency exchange rates. The forex market provides high leverage to traders so they can profit from very small changes in these rates. The typical account provides 50:1 leverage, which allows $1,000 cash to speculate on $50,000 worth of foreign currency. These high risks and rewards from such small changes in rates cause most forex traders to study ultra short time frames and maintain positions for at little as a few seconds. If you wish to learn forex trading for greater profits, you need to free yourself from these constraints and focus on a larger trend.
Other People Are Reading
Instructions
-
-
1
Chart your forex currency in any charting program. Most forex brokers provide their own proprietary trading platform that includes comprehensive charting features. You also may use free online charting services. (See Resources.)
-
2
Configure a time frame for your chart that is broader than the periodicity you usually study. For example, if you normally study 1-minute charts, where each forex bar forms new each minute, then create a 5- or 10-minute chart instead. This offers a bigger picture of how prices flow.
-
-
3
Create a second forex chart that uses an even larger time frame than your first chart. For example, if you created a 10-minute chart, now create a second chart set at 30-minute bars.
-
4
Compare the consecutive highs and lows on each chart. These are the peaks and valleys formed by price fluctuation. According to the Dow Theory, a century-old method for identifying trends, you can quickly identify the validity of a price trend by studying these price points. If both the highs and lows are sequentially rising together, a pattern called "higher highs and higher lows," this is a solid up trend.
-
5
Study your regular short-term forex chart only if these two other charts show trending action in the same direction. For example, if both a 5-minute chart and a 30-minute chart of the same forex symbol show higher highs and higher lows, then a strong trend is in play on both time frames. This dramatically increases your odds of success.
-
6
Chart a different forex symbol if the trends in these charts do not line up. If the larger 30-minute trend is negative or non-existent, but you see a trend on the 10-minute chart, this is still cautionary. You have greater reward potential by seeking currencies that are trending on all time frames.
-
7
Buy into the forex symbol when your short-term chart, such as a 1-minute chart, begins showing the same Dow Theory trend pattern as the higher time frame charts. You will have greater confidence and chances of success since you are entering a short-term trend that flows in the same direction as longer time frame trends.
-
1
Tips & Warnings
The forex market is one of the most risky trading environments in the financial industry. Never trade with money you cannot afford to lose and use small or simulated positions until you are comfortable with your strategy.
