How to Trade on the Forex Market?

Updated: 01/07/2007 09:20
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Trading is the game of mind. In this article we examine the conditions of successful trade on the Forex market. Undoubtedly, trade on any market is not possible without a good skilful trader. That's why the main point of this volume of the article "How to trade on the Forex market?" will be about the trader as the most important component of the Forex trade.

First you should change your consciousness from thinking of a normal person to thinking of a trader. Almost all traders, besides several successful who actually made million and billion dealing on the market, simply spend their time for nothing attempting to study the simplest like reading data and graphs, improving entrances and mastering outputs etc.

Trading is the game of mind and without the appropriate structure of consciousness it is a losing game (even before its beginning). The preparation of trading consciousness is the first step for a successful trader but almost all new traders disregard it that explains why more than 95% traders fail finally.

The acquisition of the knowledge of market is not difficult for a person with the average intellect. But the level of intellect and knowledge do not determine the result of the trader's market activity. The process of decision making plays the most important role. Making decision is very difficult for the majority of traders but it is the main reason of success or failure of any trader.

The trader is ready to make decisions after spending time for studies to realize his knowledge and develop the system. However, this all is easy to say but it is difficult to put into practice when traders deal with the real money on the market.

If profit grows to several hundred dollars and the system tells you to continue, there is no guarantee whatever that the profit will not become loss in a few days. Only the discipline helps the trader to overcome the sickliness of correct solutions in the necessary time on which the result of transaction depends. Therefore I call trading the game of mind.

It is always advisable to average the intermediate-term position when traders are convinced of the appearance of a new trend. Thus, after beginning the position of USD/JPY with 135 traders added to 132 and 129. The same thing is for AUD/USD and EUR/USD. Of course, this process costs much money and hurts too. Many traders cannot transfer pain and leave too early.

But there is no other method to make much money and we must suffer pain till the intermediate-term trend remains intact. That's why it is important to remember that the psychological aspects of trade are important for successful trade.

Any market (immovable property or Forex) is the method of the money transfer from the crowd to several luckiest persons. A lot of money is made by the speculations with the people's real property but this money is visible only on the paper because the profit disappears before transferring the paper profit into the solid available amount. In most cases of speculations on the Forex the human mass hardly survive several years because insufficient knowledge of market is lacking.

Each trader must find his method and system which approach only to him. Therefore, if intermediate-term trader Tom makes money already three decades with his method his system can not be right for day traders Dick and Harry and vice versa. Successful trading is the skill to obtain as much as possible when you are right. This is the main point of this business. Therefore, any theory or system which satisfies this rule is good.

The majority of traders do not realize control of capital in a right way therefore there are so few conquerors finally. Only control of capital and discipline make the trader but not the elementary methods of entrance and output. Trade on the Forex is the game of feelings with the mentality of crowd where even the best players with the best forecasts loose good positions by the motion of price.

The Forex market works in a very simple way. For a while it will be saved in a certain area and as soon as the accumulation is completed the Forex moves to a certain distance. Then the phase of accumulation again begins and moves to a certain distance, and again, and again.

Day trading cannot give best results when the accumulation and the distribution fight neutralizing each other by zigzag steps. At the same time when the market begins to leave the area of the accumulation day trading is the reliable method to interrupt profit.

Generally, the trade inside the day is not the best form of obtaining profit though some authors attempt to prove this statement without having made real money in this game. The safest and best way to make money is to wait the end "of accumulation" and to take a total length "of the distribution" in the form of a short term (within 2-10 days) transaction.

In the conclusion of this volume we show the most important sayings of the Forex trading which can set the traders on the right track of this business:

On the Forex it is necessary to think how to achieve the immediate object correctly and not to think about the distant future. The immediate object can be 2 pips or 20 pips, or 200 pips, or 500 pips depending on the style of the trader.

On the Forex everything is possible. The information of a good quality is all in this game. Catching of the bottom of USD/JPY is the basis of all risky transactions.We always learn to deal and daily we learn by each other. This is the beauty of trade and life generally.The Forex players can work secretly but they cannot hide their motions on the graphs.

It is very advisable to study the 8-hour or 4-hour graphs of bars and to look for patterns and the 20-period average on the graphs daily within several months. In this way you will understand what the accumulation and the distribution for the short-term transactions on the Forex market meant in the volume 1 of this article. These processes are suited for the market so you can always decide what tactics must be used in this time period. The rest is the matter of capital control, discipline, and certainly experience.

Speaking about the technical side of trading, the first necessary action is to determine the trend in the given time scale and to select a commercial strategy for this trend. Some traders hold positions within many months while the others do this less than one hour or one day. The daily fluctuations can be only harmless for the trader who holds a position within a few months, while the same daily fluctuation can become a monstrous event for day traders.

According to many experienced Forex traders, it is better to keep the technical analysis of any pair of currencies as simple as possible to see how it is possible to use a situation in their interests. The strategy is to determine "the range of a transaction". The intermediate-term turns can be proved by only the monthly, weekly and day graphs. Reading a graph cannot predict the apex or the bottom of a motion but it can confirm a trend change to undertake a right strategy for this new trend.

It is not bad to use very primitive graphic methods. You can look at the eight-hour graphs EUR/GBP between 20 and 40 MA and turn your attention to the round numbers and breakthroughs (then you understand that there is no more primitive method than this one but also very effective).

You should look at the weekly EUR/USD and USD/JPY with 10 RSI and the monthly AUD/USD with 10 RSI, observing "the patterns" but not the levels. In such way you learn the primitive work of things. The RSI is useful "only within the weekly and monthly time scale". You can ignore the RSI within the short-term scales, as the RSI inventor RSI Wilder said us a long time ago.

If you deal inside the day the 30-minute and 15-minute graphs of spark plugs in the combination with MACD and MA can be more usefully than the hour-long or even daily graphs. Do not pass especially the long parts of spark plugs as the confirmation of the change of a short-term trend.

It is important to use races and gold. EUR/GBP and GBP/JPY have a property of the leading indicators of the USD/JPY and EUR/USD motion. EUR/CHF is like EUR/GBP in the value forecast.

Speaking briefly, EUR/GBP and GBP/CHF are the anticipating indicators for EUR/USD and USD/CHF. Furthermore, GBP/JPY, EUR/JPY and CHF/JPY are anticipating indicators for USD/JPY. EUR/JPY is very important to EUR/USD while GBP/JPY plays the same role for GBP/USD.

For example, the yesterday's weakness EUR/USD began from the sales of EUR/JPY that sent EUR/USD and USD/JPY downward. According to the rule of "the thumb", if EUR/USD does not move and EUR/GBP begins to move this is a good indicator that someone will bring EUR/USD in the same direction more lately. And when EUR/USD moves and EUR/GBP does not move, it is very probable that the EUR/USD motion will be brief soon. USD/JPY makes the same motions in the relation with EUR/JPY and GBP/JPY.

Gold is the mirror of the dollar for hedging purposes, and their correlation is excellent. Sometimes when there is too much information for checking, which change every hour, it is enough only to control gold. The graph of gold is one of the main schedules which you must always observe by the trade on the Forex.

The graph EUR/GBP and the graph EUR/JPY are also an excellent mirror for the direction of EUR/USD for the large part of time. The graphs of gold, EUR/GBP and EUR/JPY make the history of market with the fact that gold and EUR/GBP conduct the rest part of the Forex most frequently.

There are some pieces of advice of the USD/JPY trade. One of the most foolish rules of "the thumb" in the trade of USD/JPY is that it rarely walks to 700-800 pips by contract without the correction to 200 or more pips in the middle of a motion. Moreover, the trade of USD/JPY almost always rolls to 350 points back from its start moving of 700-800 pips. All this is because of the problem of liquidity on the Yen market.

The position traders hold the yen positions till several hundred pips. The more adroit approach is required for the intra-day transactions. As the position trader of yen, never buy below falling day 20 MA and never sell above growing day 20 MA regardless of the fact how attractive the situation is. Begin to buy only when the day's 20 MA begins to rise from any level because this is not only safe but also checked method to make money, although it appears so simply.

What reaction to the news should the Forex trader have? The market always read the news or the data to the side of the predominant mood of market. Data can show the state of market well. If the data are poor and the price rises or does not react, the bull market must be if the strategy of purchase on the bottom will be the best choice.

On the contrary, if the data are good but the price does not grow or even falls this is the descending trend if the sale on the rebound will be the best strategy. It will be the significant point whether poor or good news does not influence the price as before. Changes of the mood of market are usually accompanied by this reaction on the news.

A good sleep is important to successful trade but the majority of traders sleep only with one opened eye.


About the author

Nicole Berger has over seven years experience writing and editing for online and print media. She has held various editor and associate editor positions in some of forefront independent media publications. A consistently dependable team player, I thrive in a high-pressure environment, enjoy the challenges of meeting deadlines and managing a team, and am comfortable researching, writing and editing on a wide range of topics.
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