Tuesday, 30 August 2011

Steps to Trade Forex Profitably

One of the biggest issues faced by a budding Forex trader is developing a trading system that fits you and the standards you have set for yourself like a glove. No, I hate to burst your bubble, but there are no one-size-fits-all or Holy Grail trading strategies. If there is one, then all Forex traders would've been rich by now! Anyway, if you are yet to get started with the development of your profitable Forex trading system, here are steps that will get you going in the right direction:
Step 1: In chess, there's a tried and tested acronym - KISS. This stands for the old adage: "Keep It Simple Stupid!" The same thing goes for Forex Trading. Why complicate things when a couple of good and reliable rules would suffice for your system? Yes, you need to make sure you have sound guidelines to follow, but that doesn't mean you need to stuff it with rules. Knowing how much you would risk on every trade, where to place those much-needed stops and limits, and when to place them would be a good start.
Step 2: Always keep an eye for long-term trends. Better yet, grab a chart and use it to time your entry. I repeat, you need to look at long-term trends. These events make a lasting impact on the market. It could be as long as a month, two, or more... not just a few days or a couple of weeks.
Step 3: Trade using the Breakout method, and you should build your system in such a way that it helps you recognize or predict when a currency pair is about to break out. For the uninitiated, a breakout is when a currency pair, which has been trading for a few days, and suddenly makes a big move. It can be upwards or downwards.
Step 4: Know your market! This is a very important step. As a Forex trader, your primary 'tools of trade' include the market and your knowledge of it. Your knowledge (or lack thereof) of the market you are in spells the difference between making stable gains and losing in wipe-outs. Oh! And I should add, you must have an open mind when you do your homework.
Step 5: Decide what your time frame is. You need to know how much time you can spend on Forex trading. To complete this step, you should determine what kind of trader you want to be. Are you planning to be a long-term trader who makes only 3 to 4 trades in a while? Do you want to be a day trader? Perhaps you are planning to be a swing trader? Answer these questions and you will know the time frame that would suit you.
Step 5: The only thing that doesn't change is change itself. Markets and trends change, and so should you. Market research should be an on-going affair. Along with that, your Forex trading system should be changed accordingly if you want to be profitable.
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