talhayousuf
Member
The first thing you should know about Forex is that there is no holy grail in trading – there is no strategy or system, which is guaranteed to profit 100% of the time.
They say that all successful traders make profits differently and all losing traders lose the same way. This isn't hard to accept, considering the variety and versatility of trading tools available to Forex traders, and at the same time only a handful of the most common trading mistakes to make.
In order to be successful, every trader must take the time to try out different strategies and systems to see which one works for them.
The most profitable Forex trading system is made up of 50% of a strategy that you understand thoroughly and the other 50% is a strategy that you can follow consistently with patience and confidence, which only happens when you trust the strategy to yield a return.
Allow me to emphasize the latter 50% by directing your attention to one very important fact that might save your account one day. Most traders fail not because of the flaws in their systems, but because of flaws in their discipline to execute it.
Strategy Building Blocks
At the beginning of his journey, a rookie trader will quickly discover that a rich pallet of tools is available in Forex trading.
There is plenty of room for creativity.
Sometimes, a trader will borrow a strategy in the form of pre-determined techniques and styles and adjust it to his liking.
Most of the time, traders start from scratch and gradually create their own mix of charting techniques, technical indicators, fundamental indicators, and trading styles.
They will then continuously mould the strategy as they progress, perhaps adding new tricks or getting rid of what is considered to be obsolete.
A strategy changes with the trader, the trader changes with the market and the markets change with time.
In this article we will discuss the two broad groups of trading tools that more or less classify all trading indicators available.
Hopefully, you will develop an understanding of what is available to you, how tools from various groups complement each other, and what the most profitable Forex system could look like for you.
Learn more about Forex Trading Strategies
Technical Tools
Technical analysis is chart bound. It takes one of the Dow theory postulates as the premises – the market discounts everything. Whatever factor has an impact on supply or demand it will inevitably be reflected in the price, and by extension technicalists’ claim, it will be reflected on the charts.
Price action
Charts are made from the time/price field with the price action displayed on it as if on a plate, waiting for your interpretation. No matter which trading style – long-term positional or short-term intra-day – you are using, everything starts with charting.
This wasn't always the case, but now what is considered the most favourable method of price action charting in the world, not only for the Forex market, is the Japanese candlestick. This method is around 300 years old and there are trading strategies based on reading candlestick patterns alone.
These strategies are somewhat subjective, since there is always a degree of disparity between the example pattern and what you see on your charts. This leaves room for interpretation and decision-making in the hands of a trader.
As a side note, whether you want freedom in interpretation of charts or prefer algorithmic type trading that leaves no room for self-debate, is something you will have to find out for yourself as a trader. Nobody else can do this for you. It may be worth mentioning that algorithmic trading is more instructional and rule based and therefore possibly safer for beginner traders.
Now, back to candlesticks. Candlestick pattern based strategies may be used for various markets and on various time frames. They are simple to understand as a concept, but often lack signal precision. If not being the alpha and omega of your trading strategy, candlesticks and their variation like Heikin-Ashi, may prove to be a solid building ground.
Now that your charts have the price action mapped out, let's talk about your supporting constructions.
In the foundations of price action trading lies an observation that the market often revisits price levels where it reversed or consolidated – this introduces the concept of support and resistance levels into trading.
Support or resistance levels are less of a line defined strictly to a pip and more of an area that can range from a couple to a couple of dozens pips in width, depending on the time frame you are looking at. Traders generally refrain from trading near S&R as it is unclear whether the price will bounce off or break though.
They say that all successful traders make profits differently and all losing traders lose the same way. This isn't hard to accept, considering the variety and versatility of trading tools available to Forex traders, and at the same time only a handful of the most common trading mistakes to make.
In order to be successful, every trader must take the time to try out different strategies and systems to see which one works for them.
The most profitable Forex trading system is made up of 50% of a strategy that you understand thoroughly and the other 50% is a strategy that you can follow consistently with patience and confidence, which only happens when you trust the strategy to yield a return.
Allow me to emphasize the latter 50% by directing your attention to one very important fact that might save your account one day. Most traders fail not because of the flaws in their systems, but because of flaws in their discipline to execute it.
Strategy Building Blocks
At the beginning of his journey, a rookie trader will quickly discover that a rich pallet of tools is available in Forex trading.
There is plenty of room for creativity.
Sometimes, a trader will borrow a strategy in the form of pre-determined techniques and styles and adjust it to his liking.
Most of the time, traders start from scratch and gradually create their own mix of charting techniques, technical indicators, fundamental indicators, and trading styles.
They will then continuously mould the strategy as they progress, perhaps adding new tricks or getting rid of what is considered to be obsolete.
A strategy changes with the trader, the trader changes with the market and the markets change with time.
In this article we will discuss the two broad groups of trading tools that more or less classify all trading indicators available.
Hopefully, you will develop an understanding of what is available to you, how tools from various groups complement each other, and what the most profitable Forex system could look like for you.
Learn more about Forex Trading Strategies
Technical Tools
Technical analysis is chart bound. It takes one of the Dow theory postulates as the premises – the market discounts everything. Whatever factor has an impact on supply or demand it will inevitably be reflected in the price, and by extension technicalists’ claim, it will be reflected on the charts.
Price action
Charts are made from the time/price field with the price action displayed on it as if on a plate, waiting for your interpretation. No matter which trading style – long-term positional or short-term intra-day – you are using, everything starts with charting.
This wasn't always the case, but now what is considered the most favourable method of price action charting in the world, not only for the Forex market, is the Japanese candlestick. This method is around 300 years old and there are trading strategies based on reading candlestick patterns alone.
These strategies are somewhat subjective, since there is always a degree of disparity between the example pattern and what you see on your charts. This leaves room for interpretation and decision-making in the hands of a trader.
As a side note, whether you want freedom in interpretation of charts or prefer algorithmic type trading that leaves no room for self-debate, is something you will have to find out for yourself as a trader. Nobody else can do this for you. It may be worth mentioning that algorithmic trading is more instructional and rule based and therefore possibly safer for beginner traders.
Now, back to candlesticks. Candlestick pattern based strategies may be used for various markets and on various time frames. They are simple to understand as a concept, but often lack signal precision. If not being the alpha and omega of your trading strategy, candlesticks and their variation like Heikin-Ashi, may prove to be a solid building ground.
Now that your charts have the price action mapped out, let's talk about your supporting constructions.
In the foundations of price action trading lies an observation that the market often revisits price levels where it reversed or consolidated – this introduces the concept of support and resistance levels into trading.
Support or resistance levels are less of a line defined strictly to a pip and more of an area that can range from a couple to a couple of dozens pips in width, depending on the time frame you are looking at. Traders generally refrain from trading near S&R as it is unclear whether the price will bounce off or break though.
