FOREX Knowledge Base: FOREX Trading Tips & Tricks
Foreign exchange trading is a challenging business. While it can be quite lucrative--after all, some of the richest men in the world have made their fortunes trading forex--it is a difficult and challenging business. You will hear an often-cited statistic that 95 percent of people involved in forex trading will lose money, which leaves only 5 percent who profit. For you to become successful, there are a few things that you should pay attention to.
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Use the Higher Time Frames to Determine The Trend
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You will need to experiment to figure out what time frame you are comfortable trading on. Some people find the one-hour chart too slow, while others think it's too fast and choose to look at the daily charts instead. Whatever the case, once you have chosen your time frame for decision-making, you will want to look at the next-higher time frame to determine the trend. So if you trade off a 15-minute chart, use a one-hour for the trend; if you use a one-hour, then use the daily for the trend, and so on. Knowing the direction of the trend and only trading in that direction is one of the most important keys to becoming a successful trader. As the old trading adage goes: "The trend is your friend."
Draw Trend Lines
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This is a simple, yet powerful and often overlooked, tool in a forex trader's arsenal. To draw a trend line, look at the trend on the chart on the higher time frame. If it appears to be going up, find the last low on the chart and connect the next lows going forward. You should try to have at least three connecting points on the line, although it doesn't have to be perfect. If the trend is up, you will get a series of higher lows. Once the trend line is broken to the downside, you should no longer be a buyer in this market.
If the market is trending downward, then you will want to connect the tops and you should see a series of lower highs. -
Use a Two-Candle Reversal Entry
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This is an effective entry technique that will get you into the market fairly early and without too much risk. First, determine the trend of the market. Then look for a pattern with two consecutive candlesticks on your price chart that are going in an opposite direction of the trend. So if the trend is going up, you will want to find two candles in a row that are going down. Once you've done this, draw a horizontal line across the top of the body of the highest candle. Make sure to draw it across the body and not the wick. Now you can use this as an entry signal. When price crosses this line, it is a signal to buy. Likewise if the market is trending down you can find two consecutive candles that are going up. Draw a horizontal line along the bottom of the body of the lowest candle. Once price has broken through it, this is your signal to sell the market. Make sure to always take trades in the direction of the trend using this method.
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