How to Become a Successful Forex Trader


Retail traders simply beginning get in the forex market square measure usually unprepared for what lies ahead and find yourself undergoing an equivalent life cycle: initial they dive in head initial – sometimes losing their initial account – so they either surrender, or they take a step back and do a bit a lot of analysis and open a demo account to apply. people who try this can usually eventually open another live account, and knowledge a bit a lot of success – breaking even or turning a profit.

Why Medium Term?

So, why square measure we tend to that specialize in medium-term forex trading? Why not long or short strategies? To answer that question, let's take a glance at the subsequent comparison table:

Type of Trader
Definition
Good Points
Bad Points
Short-Term (Scalper)
A trader who looks to open and close a trade within minutes, often taking advantage of small price movements with a large amount of leverage.
Quick realization of profits or losses due to the rapid-fire nature of this type of trading.
Large capital and/or risk requirements due to the large amount of leverage needed to profit from such small movements.
Medium-Term
A trader typically looking to hold positions for one or more days, often taking advantage of opportunistic technical situations.
Lowest capital requirements of the three because leverage is necessary only to boost profits.
Fewer opportunities because these types of trades are more difficult to find and execute.
Long-Term
A trader looking to hold positions for months or years, often basing decisions on long-term fundamental factors.
More reliable long-run profits because this depends on reliable fundamental factors.

Large capital requirements to cover volatile movements against any open position.


 Now, you may notice that each short and semipermanent traders need an outsized quantity of capital – the primary kind wants it to get enough leverage, and also the different to hide volatility. though these 2 kinds of traders exist within the marketplace, they're usually positions command by high-net-worth people or larger funds. For these reasons, retail traders square measure presumably to succeed employing a medium-term strategy.

The Basic Framework

The framework of the strategy lined during this article can specialize in one central concept: mercantilism with the chances. To do this, we are going to explore a range of techniques in multiple time frames to work out whether or not a given trade is value taking. detain mind, however, that this can be not a mechanical/automatic mercantilism system; rather, it's a system by that you may receive technical input and create a call primarily based upon it. The secret is finding things wherever all (or most) of the technical signals purpose within the same direction. These high-probability mercantilism things can, in turn, usually be profitable.

Chart Creation and Markup

Selecting a mercantilism Program

 We will be employing a free program known as MetaTrader as an example this mercantilism strategy; but, several different similar programs can even be used which will yield identical results. There square measure 2 basic items the mercantilism program should have:
  • the ability to show 3 totally different time frames at the same time
  • the ability to plot technical indicators, like moving averages (EMA and SMA), relative strength index (RSI), stochastics and moving average convergence divergence (MACD)

Setting up the symptoms

 Now we are going to explore the way to established this strategy in your chosen mercantilism program. we are going to additionally outline a set of technical indicators with rules related to them. These technical indicators square measure used as a filter for your trades.

 If you decide on to use additional indicators than shown here, you may produce a additional reliable system which will generate fewer mercantilism opportunities. Conversely, if you decide on to use fewer indicators than shown here, you may produce a less-reliable system which will generate additional mercantilism opportunities. Here square measure the settings that we are going to use for this article:

 Minute-by-minute candlestick chart

  • RSI (15)
  • stochastics (15,3,3)
  • MACD (Default)
  • Hourly candlestick chart
  • EMA (100)
  • EMA (10)
  • EMA (5)
  • MACD (Default)
  • Daily candlestick chart
  • SMA (100)


Adding in different Studies

 Now you may wish to include the employment of a number of the additional subjective studies, like the following:
  • Significant trendlines that you simply see in any of the time frames
  • Fibonacci retracements, arcs or fans that you simply see within the hourly or daily charts
  • Support or resistance that you simply see in any of the time frames
  • Pivot points calculated from the previous day to the hourly and circumstantially charts
  • chart patterns that you simply see in any of the time frames

Finding Entry and Exit Points

The key to finding entry purposes is to appear for times within which all of the symptoms point within the same direction. Moreover, the signals of every time-frame ought to support the temporal order and direction of the trade. There square measure a number of explicit instances that you simply ought to look for:

 Bullish
  • Bullish holder engulfings or alternative formations
  • Trendline/channel breakouts upwards
  • Positive divergences in RSI, stochastics and MACD
  • Moving average crossovers (shorter biological process longer)
  • Strong, reenforcement and weak, distant resistance



Bearish
  • Bearish candle holder engulfings or alternative formations
  • Trendline/channel breakouts down
  • Negative divergences in RSI, stochastics and MACD
  • Moving average crossovers (shorter crossing below longer)
  • Strong, shut resistance and weak, distant support

It is an honest plan to position exit points (both stop losses and take profits) before even putting the trade. These points ought to be placed at key levels, and changed providing there's a modification within the premise for your trade (oftentimes as a results of fundamentals returning into play). you'll be able to place these exit points at key levels, including:
  • Just before areas of sturdy support or resistance
  • At key Fibonacci levels (retracements, fans or arcs)
  • Just inside key trendlines or channels

Let's take a glance at some of samples of individual charts employing a combination of indicators to find specific entry and exit points. Again, ensure any trades that you simply shall place square measure supported all told 3 time frames.

 we can see that a large number of indicators square measure inform within the same direction. there's a pessimistic head-and-shoulders pattern, a MACD, Fibonacci resistance and pessimistic EMA crossover (five- and 10-day). we have a tendency to additionally see that a Fibonacci support provides a pleasant exit purpose. This trade is sweet for fifty pips, and takes place over but 2 days.

 above, we will see several indicators that time to a protracted position. we've got a optimistic engulfing, a Fibonacci support and a 100-day SMA support. Again, we have a tendency to see a Fibonacci resistance level that has a wonderful exit purpose. This trade is sweet for nearly two hundred pips in precisely some weeks. Note that we have a tendency to may break this trade into smaller trades on the hourly chart.

Money Management and Risk

Money management is essential to success in any marketplace however notably within the forex market, that is one amongst the foremost volatile markets to trade. again and again basic factors will send currency rates swinging in one direction – solely to possess the rates whipsaw into another direction in just minutes. So, it's vital to limit your draw back by continually utilizing stop-loss points and commerce only if sensible opportunities arise.
Here square measure some specific ways that during which you'll be able to limit risk:

 Increase the amount of indicators that you simply square measure victimization. this may end in a harsher filter through that your trades square measure screened. Note that this may end in fewer opportunities.
Place stop-loss points at the nighest resistance levels. Note that this could end in lost gains.
Use trailing stop losses to lock in profits and limit losses once your trade turns favorable. Note, however, that this could additionally end in lost gains.

The Bottom Line


Anyone will build cash within the forex market, however this needs patience and following a well-defined strategy. However, if you approach forex commerce via a careful, medium-term strategy, you'll be able to avoid changing into a casualty of this market.

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