Super FOREX Tips

Predicting future Forex prices is as much an art as it is science.

Forex, or foreign exchange, is a world-wide market that facilitates the trading of currencies around the world. In a global economic market, it is often necessary for banks and other businesses to exchange one country's currency for another. Individual investors and traders can also participate in the Forex market for the purpose of speculation or investment. Typically, Forex is considered riskier than the stock market, but it is possible to trade it profitably if you follow a few important rules.

Trade the Trend

In order to profit in the Forex markets, you need to reasonably predict the future price direction. Future price direction is most predictable when the price is in an up trend or a down trend. A trend can usually easily be identified just by looking at the price chart. If the price is generally moving higher or lower over a period of several weeks, it is likely trending. Contrarily, if the price is just bouncing up and down, but not making any real progress in one direction, it is likely ranging. Price ranges are random and are unpredictable.

Use Protective Stops

Every Forex trader, no matter how experienced, makes mistakes. Prices don't always move in the direction you predict. In order to be successful, it is important to cut your losses quickly when a position you buy starts to lose money. A protective stop order is an order you place with your broker that automatically forces your position to sell if it loses a predetermined amount of money. Generally, it is a good idea to place a stop order 2 to 3 percent below the price you buy.

Use an Oscillator

An oscillator is a technical indicator that tells you if the price is overbought or oversold. Prices that are overbought tend to correct lower and vice versa. Popular oscillators include stochastics and the relative strength indicator. Oscillators are available with most price charts. They are typically plotted as a line that vacillates between 0 and 100. When the indicator line in the oscillator is near 0, the price is considered oversold. It is a good idea to avoid buying positions that are overbought and it may be profitable to buy positions that are oversold.

Don't Average Down

Averaging down is the practice of buying more shares in the same position you are losing money in. It is thought by some that this will lower your average entry price and allow you to recover the loss more quickly if the price reverses back in your favor. On the other hand, if the price continues lower, you can lose even more money. Averaging down is an extremely risky practice and should be avoided.

References

• Daily Markets: Forex Basics
• Wharton University: Forex Forecasting
• Stanford University: Encoding Trader Horse Sense