Trading the foreign exchange market has became very popular within the last few years. But how difficult could it be to achieve success in the Forex trading arena? Or allow me to rephrase this question, how many traders achieve consistent profitable results trading the foreign exchange market? Unfortunately very few, only 5% of traders accomplish this goal. One of the main reasons of the is because Forex traders concentrate the wrong information to make their trading decisions and totally overlook the most important factor: Price behavior.
Most Forex currency trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions within an oscillator, etc.) But what are technical indicators? They’re just a series of data points plotted inside a chart; these points are based on a mathematical formula put on the price of any given currency pair. In short, it is a chart of price plotted in different ways that helps us see other facets of price.
There is an important implication about this definition of technical indicators. The truth that the readings obtained from options are based on price action. For instance a long MA crossover signal, the cost has gone up enough to create the short period MA crossover the any period of time MA generating a long signal. Most traders view it as âthe MA crossover made the cost go up,â but it happened the other way round, the MA crossover signal occurred since the price went up. Where Iâm looking to get here is that at the end, price behavior dictates how an indication will act, and this ought to be taken into consideration on any trading decision made.
Trading decisions according to technical indicators without taking price action into account will give us less accurate results. For instance, again a long signal generated with a MA crossover as the market approaches an essential resistance level. If the price suddenly begins to bounce back off that important level there isn’t any point on taking this signal, price action is telling us the marketplace doesnât want to go up. Most of the time, under this circumstances, the marketplace will continue to fall down, disregarding the MA crossover.
Donât misunderstand me here, technical indicators really are a very important aspect of trading. They assist us see certain problems that are otherwise difficult to see by watching pure price action. However when it comes to pull the trigger, price action incorporation into our Forex currency trading system will definitely put the odds within our favor, it will generate higher probability trades.
So, how you can create a perfect Forex trading system?
To begin with, you need to make sure your trading plan fits your trading personality; or else you will find it hard to follow it. Every trader has different needs and goals, thus there isn’t any system that perfectly fits all traders. You have to make your own research on various trading styles and technical indicators before you find a concept that perfectly matches your needs. Make sure you know the nature of whatever technical indicator used.
Secondly, incorporate price action to your system. So you only take long signals when the price behavior tells you the marketplace wants to go up, and short signals when the market gives you indication that it’ll go down.
Third, and most importantly, you must have the discipline to follow your Forex currency trading system rigorously. Try it first on the demo account, then proceed to a small account and finally when feeling comfortably and being consistent profitable apply the body in a regular account.