Tag: Forex trading

All Forex trading related articles are found here. Educative, informative and written clearly.

What is Alpha in Trading?
What Exactly Is Alpha?

The ability of an investment strategy to beat the market, or its “edge,” is referred to as alpha (α). As a result, alpha is also known as “excess return” or “abnormal rate of return,” which alludes to the assumption that markets are efficient and that there is no way to systematically achieve returns that are higher than the overall market. Alpha is frequently used in conjunction with beta (the Greek letter), which quantifies the overall volatility or risk of the market as a whole, also known as systematic market risk.
- Excess returns earned on an investment over the benchmark return are referred to as alpha.
- Diversification is meant to eliminate unsystematic risk, and active portfolio managers strive to produce alpha in diverse portfolios.
- Because alpha measures a portfolio’s performance against a benchmark, it’s commonly thought of as the value that a portfolio manager adds to or subtracts from a fund’s return.
To put it another way, alpha is the return on an investment that is not influenced by broader market movements. As a result, an alpha of zero means that the portfolio or fund is perfectly mirroring the benchmark index and that the manager has contributed or lost no additional value over the general market.

Advantages of Alpha

Fund managers can use alpha to get a sense of how their portfolios are doing in comparison to the rest of the market. Alpha can be a useful tool in trading and investing for determining market entry and exit opportunities.

The disadvantages of alpha

The drawbacks of using alpha as a way to measure returns include that it can’t be used to compare different investment portfolios or asset kinds because it’s limited to stock market investments.

Beta vs. Alpha

To compare and analyze portfolio results, alpha and beta are utilized together. While alpha is a measure of a portfolio’s performance, beta is a measure of its historical volatility – or risk – in comparison to the overall market. For example, a beta of 1.2 indicates that the stock is 20% more volatile than the market.

Conclusion

Alpha is a technical analysis ratio that shows how a stock has performed or given outcomes when compared to a benchmark or market index. The alpha percentage, which is commonly expressed in simple numbers like alpha 4 or 5, or alpha -1, is the amount by which a stock or portfolio has excelled or underperformed its benchmark. A high alpha indicates a strong stock, while a low alpha indicates a bad stock.
2nd September 2021
How to predict movement in the Forex market?

It is possible to predict movement on the Forex market based on several factors.

By Guy Avtalyon

I know some of you will wonder if it is possible to predict movement in the forex market. We are all suspicious about any kind of predictions, so why wouldn’t we be when it comes to the forex? On the other hand, almost every successful forex trader will tell you that successful trading comes from the ability to predict the movement in the forex market. So they must know something or they have some secret ingredients or skills.

I want to tell you that the ability to predict movement in forex isn’t something you can be born with. Actually, it is something you are building all your trading life. To create that complicated construction, you must understand the factors that influence a currency’s exchange rate. Of course, if you want to profit from forex trading.

Well, why shouldn’t you?

Millions of traders want to trade Forex because they understand it is the best market to trade. The potential of the online trading market is excellent.

So I want to tell you more about the factors you should consider in trading forex. That could help you to predict movement in the Forex market in a way to have better chances for success.

Predict movement in the Forex market

One of these factors you have to pay attention to is economic growth. The central banks in a country with a strong economy will raise the interest rate to prevent inflation. Higher interest rates always drive the growth of the number of investors, which means the demand for domestic currency increases.

Another factor you should understand is geo-politics. You have to watch and notice any kind of disturbance in the political scene. I know you might think it’s too dull. Well, this is very important if you want to predict movement in the forex market because political changes can change the direction of the exchange rate. We saw this so many times in history. If you want to trade currencies successfully, you’ll need to follow political and economic news.

Speaking about interest rates, keep in mind that some currency’s value increases along with rising interest rates. This increased value is known as capital appreciation. That is exactly what gives you the opportunity to profit in trading forex. The currency rate is associated with interest rates. So pay attention to it. The data you gather could be a great help in predicting movements in the Forex market.

Arguably one of the most important factors is recognizing if the currency is conditioned on the country’s capital or trade flow. Capital flow represents the amount of investment some country receives from international capital reservoirs. Trade flow represents income produced from trade. So, you’ll notice that some countries depend on capital flow, while others are very dependent on trade flows.

The least important factors are mergers and acquisitions when we talk about predicting movements in the forex market. Still, mergers and acquisitions can show you near-term currency changes. Smart traders always pay a lot of attention to them.

Sure ways to predict movement in the Forex market

The power to predict movement in the forex market can differentiate a profitable trader from a loser. It’s essential to understand the factors that cause changes in the currency’s price value if you want to last in the forex market. Here is another set of factors that will help you predict any movement in the forex market and allow you to get an advantage in the trade.

The Consumer Price Index, or CPI, is one of the reliable methods. This measure indicates when the prices of consumer goods are rising or falling. When CPI is above 100, you can be sure the inflation is on the scene. On the other hand, we can be talking about deflation when it is under 100, as the prices are falling. You can calculate CPI per formula

CPI=(Ct/C0 )*100

where Ct is the cost of a market basket at the current time, and C0 is the cost of a market basket at some point in the past with which it is compared.

How does this influence forex trading?

It’s quite simple. If the inflation rate is steady, you’re sure you can trade a specific currency pair. On the other hand, if the inflation rate is high, stay away, or you’ll end up in losses.

Catastrophic natural disasters such as hurricanes, earthquakes, or floods ordinarily change a country’s currency and never in a favorable direction. The consequences of these events could cause a currency to depreciate.

Also, wars! They might have a calamitous result on the economy. I’m not talking about the damage to infrastructure. The currency value can be diminished, which is more important. It would help if you were updated on such an event to predict the movement in the Forex market. If you trade a currency pair that consists of the country’s currency in war, wait till the economy stabilizes.

You must have information at your disposal to help you trade forex. No one is saying you should trade without risks involved, but you should calculate the risk. It is the key principle if you want to make a maximum profit. Forex traders are always updated on events that may change the currency pair’s rate. By knowing them, you’ll be able to strategize your trades better. You’ll have a clue when to enter or exit the position.

26th October 2020
Trading Forex without a stop loss

Some professional traders don’t use a stop loss. So, why is it advised to traders: “never trade without a stop-loss”?

By Guy Avtalyon

There are numerous opposing data on the web when it comes to trading forex without a stop loss. A few years ago, I read an interesting article about professional forex traders who never used a stop loss. It was utterly conflicting with my opinion. Well, I think that using a stop loss can protect your trades from more significant losses. But I found that these traders don’t want the algorithm to catch them. They don’t wish to algorithms to know where their orders are settled.

Do I need to explain how big nonsense that is? You need stop-loss orders to protect your trades from huge losses. But they don’t use them.

And there is why they never do that.

Some of the professional forex traders are negligent and significantly rarely pay attention to risk management. Sometimes they are so sure in their ideas and things that they don’t need a stop loss.

I’m sure you had a chance to read about or watch forex traders trying to get out of their losing positions like mad just to provide modest profit or just break-even.

Some pro traders are unreasonable and unwilling to take a small loss if they are positive, they are right. In my opinion, this is irresponsible, and you cannot find many such traders staying in business for a long time. Usually, they end up burned.

Why trading forex without a stop loss?

Let me explain something. If you use a stop loss, you’re able to cut your losses quickly. When you place a stop-loss order, the trading platform will immediately close the trade when it hits that unfavourable level. On the other hand, a take-profit order is the highest level where you want to have profits. As you need to set a stop-loss order, you need to place a take-profit order no matter how strange it could sound. If you have a take-profit order in place, your trade is protected from price changes that can go against you.

But you want to know if there is genuine proof that trading Forex without a stop loss is possible. Also, you might want to know a precise strategy that entirely eliminates setting a stop-loss order.

And I’ll explain that particular strategy.

Trading Forex without a stop-loss strategy

Professional traders that never use a stop loss usually place a hedge on their initial position. You can find many methods to build a hedge and avoid setting a stop loss.

One of the most popular ways is to place a sell order at the level of stop loss. Let’s assume you enter the trade with a buy order, but it moves against your favour. So, instead of setting a stop loss, you can place a sell order at the same level.

It isn’t always a good move; very often, it can lead to a losing position. For example, if some unexpected but massive change in the market happens, you’ll lose a lot. Several years ago, it occurred to the Swiss franc. It increased in price enormously after it was unpegged of the Euro. Traders that didn’t place a stop loss for their trades that included sell orders for the franc had huge losses. That was a dramatic situation. So, you can avoid setting stop loss in trading forex, but you could face a lot of problems and huge losses.

Traders that used this hedging strategy and bought the EUR/CHF with a pending sell order, but without stop-loss, didn’t make money. But, whoever placed the stop loss instead of the hedge, had a fantastic trading day. Remember, on that day; the franc beat the Euro by over 40%. It was in 2015.

The arguments behind trading forex without a stop loss

Some of these traders believe that using a stop loss means accepting losses before the price finally moves to your direction. In my opinion, if you think the same, maybe it’s time to analyse the stop loss placement. I’m sure you’ll find where the problem is. Possibly you’re placing stop-loss point too close to your entry point. Keep in mind, a stop loss’s purpose is to limit your risk in each trade. So, try not to misuse it.

Some traders believe the excellent trading system is to hold a losing position until the price hit entry point and finally converts to a winner. Basically, this kind of traders avoids taking a loss. But will the price always come back to entry-level? I’m not so convinced.

Who can know will the price go up or down? No one is able to predict the exact movement of the price.

What I know for sure is the price will change for thousands of pips from the current price. That’s reality, and I’m not speculating. Do you really want to bet against this fact? Are you sure you can oppose it? Can you have a winning trades without a stop loss? I would never bet on it.

Some traders could tell you the stop loss can be triggered by “stop hunting” managed by the big financial organizations and they don’t want their stop loss levels to be triggered accidentally. But we have to be honest with this because financial organizations are trading when important news appears. Such a situation could force the volatility in the market, it’s true. But you can place your stop loss far away enough to avoid the influence of the event. Anyway, if you’re a beginner in forex trading it’s better to miss trade during such a period.

Professional traders trade without a stop loss is a legend

You should ignore this. The truth is there always will be the wild traders in the market. Many would like to try their hands by taking too many risks.

Trading forex without a stop loss could expose you to huge losses, and your profits could be unprotected. I know, getting stopped out isn’t the most pleasant, also it could be painful. But, don’t you think it is better to exit the position than to have losses? What you really have to do is to size your position small enough. In this way, your stop loss level will be hit on extraordinary circumstances.

1st October 2020
How to Identify Trend Reversal?

Some strategies can help you to identify trend changes even before they happen.

If you want to know how to identify trend reversal ahead of time, we’re sorry but it doesn’t exist. There is no trading system or methodology capable of doing that. The only thing you can do is to learn how to read the price action and identify potential zones where the market could reverse.

So, how to identify trend reversal? It appears when the direction of stock changes and goes back in the opposite direction. The examples of reversal are uptrends that reverse into downtrends and vice versa. What trend reversal tells us? First of all, the sentiment in the stock is changing. For example, an uptrend that reverses into a downtrend tells us that traders are taking profit from the overbought price of the stock.

On the other hand, when downtrend reverses into the uptrend shows the sentiment is changing to bullish. That means the buyers are boosting bids to reverse back into the bullish trend. Let’s examine several indicators that might help us to understand how to identify trend reversal.

Why is it important to know how to identify trend reversal?

The main importance lies in the fact that if you recognize the trend reversal on time, you’ll be able to exit the position in profit or at least, to protect your trade from extended losses. But the trend reversal also gives you a chance to profit if you trade in the opposite direction.

But there is a problem to recognize the start of the trend. We can spot the new trend only when it is already formed. It is visible after the new direction starts. The other problem is that you don’t see just one trend. Let’s say that the time frame you’re trading may have a trend that differs from the other on the lower or higher chart.

Use Moving averages to identify trend reversal

Traders broadly use moving averages to identify trend reversal and as alert of the “potential” start of a new trend direction.

Let’s say the price passes a moving average and goes above it, that could be a sign that an uptrend has just started. Hence, when the price goes below the MA indicator, the downtrend is starting.

For example, in forex trading, use two MAs, one slower and one faster. When the faster MA crosses the slower MA, it is a confirmation that the new trend is developing. But you have to be careful because technical indicators can lag prices. So, you will be late for any trend change. In the best scenario, you’ll recognize a new trend, not at the start, but very close to. Still, moving averages, particularly the 200 periods moving average, are helpful indicators that may show a trend reversal.

How to identify a trend ending?

Trends aren’t highways. You cannot just start the engine and drive from point A to point B. What we can do about trend reversals is to estimate its probability to happen.

For example, while you are trading in an uptrend direction, you can notice on your chart that something may show the market has a high possibility of reversing.

Bullish and Bearish – how to identify trend reversal?

An uptrend is bullish price development that proceeds to make constant higher highs and higher lows. A bullish reversal appears when the stock stops making higher highs and begins to make lower highs and lower lows. In other words, it reverses the direction from up to down.

A bearish trend reversal develops the same formations but inversely. In a bearish downtrend, the price action creates lower highs and lower lows. When the price ends forming lower lows and establishes a higher low and remains to rise with higher highs and higher lows, it is a bearish trend reversal.

Different time frames

How to identify trend reversal on different time frames?

The high and lows can differ depending on the time frame chart you use. Let’s explain this. For example, you use the 60-minute and 5-minute charts. In the 60-minute chart, you can see a range of lower high and lower low in a downtrend. But, your 5-minute chart can show the uptrend where higher highs and higher low candlestick closes.

This means, your 60-minute chart shows the overall constant trends but your 5-minute chart can show a different tendency. It shows moves back to the longer time frame resistance. Here are two possible scenarios. The price will return back down is one possible scenario. The other scenario could be, the price may continue to bounce and reveal the early trend reversal attempt. The time frame you are trading is very important. It has to be aligned with a more extended time frame trend.

How to trade trend reversal

You can trade trend reversal at different points during the reversal process.

The first important thing that you must keep in mind is to regularly maintain trailing stops. It is important in case the reversal turns out to be a fake. Usually, trend reversal starts as a move that fails to bounce but finally succeeds in reversing the trend. The point of reversal is a break: breakout or breakdown. It is followed by the opposing trend direction. The uptrend will ultimately top.

As the price tries to bounce again, it is faced with greater selling pressure. So, it starts to produce lower highs and lower lows to finally break support and forms the downtrend.

Of course, this trend reversal has to be confirmed. If you enter the position in anticipation of a reversal without confirmation, that may expose your trade to a risk of getting a fake signal. Also, your stop-loss will be triggered and you’ll exit the trade without profit.

If you enter the trade based on the confirmation, your entry point can be too far, so you’ll profit a little. Also, you could get stopped low on the reversion.

How to have a proper execution?

After you get the confirmation, wait for the first attempt and enter the trade close to the reversal support zone. You’ll have enough time to enter the trade if you use some of the popular methods to confirm the trend reversal.

For example, you can use trend lines. They are a simple method of visually recognizing trends and reversals. You’ll need to draw the trend lines ahead of time and to actively monitor. It’s simple to draw the trend line. Just connect the highest high and the lowest high to make the upper trend line. To draw the lower trend line, connect the lowest low and the highest low.

Trend lines could be diagonal or horizontal. If both trend lines are moving up or down together diagonally, they are in an uptrend or downtrend. How to identify trend reversal occurs? If the opposite trend line of the trend gets breached and then developed in higher highs and higher lows we have downtrend reversal in a breakout. Hence, the lower highs and lower lows represent an uptrend reversal.

In case both trend lines are horizontal, it is a consolidation that will finally end as a breakout or breakdown.

Bottom line

There is no system that can tell you how to identify trend reversal with total precision. The only chance we have is to watch the price action and identify the potential zone where the market could reverse. So, we have to identify the weakness in the trending move, and strength in the retracement move. The also important signal is a break of support and resistance. Some other indicators could be a break of the long-term trendline, or if the price is coming into the higher-timeframe formation, or goes parabolic. Also, pay attention if the price is overextended.

The more concentrated circumstances there are, the greater the possibility of a trend reversal.

22nd June 2020
Moving Averages As Support and Resistance Levels

Finding the key support and resistance levels is a crucial component of trading. Moving averages can help.

By Guy Avtalyon

Is it possible to use moving averages as support and resistance? How can they help us in trading? Is there any trick on how to use them? We know from the previous article that moving averages are an average of closing prices during the recent days. How much info we can use in the meaning of moving averages as support and resistance levels?
If you take a look at any chart with moving averages and trend lines that are formed you’ll understand why this is the subject. Moreover, this understanding may have a great impact on your profit.

Moving averages as support and resistance are extremely powerful and we’ll show you why and how.

What are the moving averages as support and resistance?

First of all, these levels are not just like conventional support and resistance. Conventional, traditional levels are visible as horizontal lines in your charts but these provided by moving averages are dynamic. They are changing according to the recent changes in price.

Dynamic support and resistance levels are zones where the market could pull back into and get support requiring to be at horizontal support or resistance levels. Why is it dynamic? Because it measures resistance and support using moving averages that are changing as market changes.

You can find many forex traders that use moving averages as support and resistance levels. For example, it is common among them to sell when the price increases and reaches the moving average and tests it. As a forex trader, you cannot ignore when the price often checks out the moving averages before it bounces back. You must understand that something is happening when the price reaches these levels.

What happens is the market is developing, evolving. So you can’t always buy or sell at previously outlined levels. Also, trends’ momentum is dynamic too due to the order flows. Momentum can often be the primary forcing power of trends or movements.

But to sum what we had here. So-called static support and resistance levels are horizontal and can’t move. On the other hand, dynamic support and resistance levels are moving and they are not horizontal.

What causes support and resistance?

When a price goes up and down, it faces obstacles on the way. If obstacles act in a way to prevent the price to drop lower, we are talking about – support. Hence, when it stops the up progress, it is resistance.

Support is formed when more traders are selling than buying. Sellers will usually cover their short positions and take the profit. The price will go lower and lower. As it happens, buyers will start to buy at that lower price and many of them will enter the new long positions. If the number of buyers is bigger than the sellers, they will create a support level eventually. But if the price moves up that means the more traders are buying and if the number of sellers is bigger than the number of buyers it is so-called resistance.

How moving averages help to find support and resistance levels

The question is how do we estimate the strength of the signal we’re seeing. Is it breakout or bounce? There are moving averages as support and resistance levels on the scene to help us. One of the benefits of using moving averages for this purpose is their ability to be handy even when the market price is going through a hidden area in our charts.

Have you ever had trouble finding key support and resistance levels when looking at the charts? Of course, you had. It is pretty much usual that when looking at charts and notice a price action, you see the price is pulling back but you cannot find support or resistance levels in that zone. But if you try to reveal how the market is valuing dynamic levels, your charts will be more clear. Moreover, you’ll find some trading opportunities you were missing before. That’s kind of an “angle-changer”. You have one perspective more to judge your trade.

One of the best ways to estimate the ability of support or resistance levels is to watch price action around them. It isn’t hard to read price action. For example, on candlestick charts it’s easy.

For example, if you use the 15-minute chart and the price rises to the 50 EMA. That could be a really good dynamic support or resistance level. You’ll notice that every time the price touches 50 EMA and tests it, you’ll see a bounce back down because the price uses this moving average as resistance. Try it, it’s simply amazing. But the price will not always perfectly bounce back from the moving average. Sometimes it will go a bit above before it starts going back in trend direction.

Sometimes the price will simply explode through it all together. Some forex traders usually leap on two moving averages and buy or sell when the price is in the middle of the zone between the two moving averages.

Does this really work?

The logic behind why moving averages as support and resistance work are very similar to why price moves. Let’s say that the majority of traders use 10-days, 20-days. 50-days, 100-days or 200-days moving averages. So, what do you think, what can happen when almost 90% of them use all these five? Nothin special. But if they choose to use only one of them in expectation for it to operate as support or resistance? Yes, you’re right. The price will respect that. When more traders expect something to happen and they have a common goal, it will happen.
Let’s examine this in the case of 10 and 20 EMAs that are providing support and resistance. What can you see?

Can you see how the 10 and 20 EMAs are providing support and resistance? These moving averages can be a powerful help but only if used with the right assembly factors. Let’s look at a setup where they unite several other factors.

Can you see how the pin bar marked in the red circle rejected the 10 EMA and a key price action level both? We have a clear uptrend without resistance beyond this key level. This was an example of a great setup. Feel free to test it.
The price will rarely bounce exactly, again, and again from the same moving average. Instead, it’s more efficient to form a support or resistance zone between two moving averages.
When the price moves into the zone between the 20 MA and 50 MA, we should ask if a reversal is going to happen. That could be a danger zone, so it may be smart to hedge the position.

How to use moving averages to lock in profit

If you want to lock in profit, move up your stop level in your trend-following trade only if you have a clear signal of bounce from moving averages you use as support or resistance. That is one of the tricks for using moving averages as support and resistance. But you have to keep in mind that moving averages as support and resistance levels are just saying to us what’s going on at these levels. We still have to look out for additional signals and find them.

The truth is that if you add MAs you’ll have additional in-trade information that may help you to maximize your trades. But like everything in Forex, you’ll have no guarantees. Consider these averages as a tool in your trading toolkit that you can adopt and use to increase your trading success.

15th June 2020
Why Forex Trading Is Hard For Some Of You?

Experienced traders admit that the greatest problem in the Forex market is not the trading approach but discipline.

Many beginners in the Forex market are faced with some difficulties and usually give up and ask around why forex trading is hard. Yes, for some traders it is hard but doesn’t have to be. Once you obtain more experience you’ll see how easy it can be and you’ll never ask again why forex trading is hard because it isn’t. Don’t believe what others are telling you. Forex trading is simple. But it’s really important to learn some basics before you enter this market. It is just like riding a horse. Once you learn it, it’s impossible to forget. And as in riding a horse, you have to know and follow some rules. Yes, you can push on your horse, as you can force your trades, but what will happen? Your horse might refuse to obey.

You have to be in line with a horse, calm and considerate, you must have the mental strength to deal with difficulties and stay cool. You must understand your horse and predict how it will act on your commands and have patience.

Almost the same comes to Forex trading. When we hear someone asking why forex trading is hard for most of the traders, we know such has lost its temper.

The other reason why forex trading is hard could be that forex traders rarely like to follow the rules. They tend to ignore them. Maybe we should ask them why. Sticking to the rules may not be so exciting but it is beneficial. Don’t listen to the scammers that offer instant solutions to great gains, strategies that are successful 100%, that work in any Forex market’s condition. Put the logic to work! It is impossible! How one single strategy can be the best for all types of traders, all circumstances, for different market conditions, personal risk tolerances? No way! Avoid such artists, Youtube is full of them.

When you learn forex trading in a proper way and follow some rules, you’ll never ask such a question of why is forex trading hard.

Let’s see why Forex trading is hard for some of you?

We already mentioned scammers. We’re pretty sure you noticed that many websites where you can just buy a trading strategy or attend some webinar over the weekend. “Become a supreme forex trader in a few hours,” “All you need is my system-pro to become a millionaire in trading forex,” or “You don’t need to learn, just follow my most profitable strategy of all times.” We really found this on the internet.

They are in most cases, scammers. Even if you try to watch some video on YouTube you’ll be confused in 20 seconds. Honestly, some of these so-called gurus can burn your brain in a few seconds. Their explanations have nothing with successful trading. They don’t even know what they are talking about. They are totally messed up!

Our two cents – If a trading guru wants to sell a fancy strategy, you shouldn’t have losses by copying it. Of course, if you strictly follow the instructions and if you have full access to his/her strategy. Well, elite traders are honest, they will tell you, they will teach you. That’s the main difference. The scammers will sell you, often it isn’t a lot of money luckily, something that isn’t working or not works for you. So that could be the reason and answer the question of why forex trading is hard. Because you got a rotten apple actually.

Forex trading can be difficult

Our brain is designed to run on the principle of causality. We are all trained to understand that everything we do has a particular consequence. Action will cause a reaction. Science also teaches us the same. For example, if we went out without an umbrella on a rainy day, we can expect to get wet. Or if we jump in shallow muddy water, we can expect to get hurt.

Right? Yes, in real-life (even if we know some people that are not aware of causal relationships, especially in the case of shallow water), but not in forex trading. In trading, you don’t have a direct balance between the time you spent in learning and the profits you obtain. To explain this. Many beginners expect if they spent weeks and months studying to trade, they could be successful automatically. That’s not how trading is. There is more.

Forex market is immune to control

Can you decide if the EUR/USD will fall? How can you know if the USD/CAD will go up or down from the last price? Most people are not able even to guess it. In everyday life, there are things we don’t need to think twice. For example, 1 + 1 = 2. That’s it. Moreover, nothing can change it. But in the markets, every minute is different. So while trading forex you have to change the strategy, method, approach, decisions. Don’t try to implement the trading patterns taken in the past. Basically, it isn’t mistaken, but the fact is that historical performance has surely no relationship to current market performance.

The forex market creates incredibly different circumstances where we have zero chances to be sure where or when the market is going to change. Maybe that is the reason why forex trading is hard.

So what to do? Anything but never try to put the market under your control. You can spend nights and days watching charts, monitoring your trades but you cannot control the market. One experienced forex trader once said that one of the most important lessons he learned is to accept the randomness in the forex market.

That isn’t the reason to avoid forex trading, that’s the reason to be ready for any possible scenario of your trades. You’ll be prepared even if your trade setup fails. Read books, learn a lot, practice a lot. That’s the key.

Why forex trading is hard – your subconsciousness could be the reason

The main duty of the subconsciousness in forex trading is to protect our wealth. But sometimes it operates in a strange way. In essence, trading should be simple since we have only two options: to sell and to buy. So, theoretically, we have 50 percent chances to be right. Yes, but the other 50% is against us. OMG, I’m losing my mind! That’s the first thought, right? Here is our subconsciousness in play. Let’s see what could happen in trading.

For example, you entered the stressful position. Everything looked good but suddenly the market turned against you. That’s the stress and your subconsciousness tries to relieve you out of that situation. What are you possibly doing? Exit the position. Why? Your subconsciousness pushed you to exit prematurely. The consequence is that you lost the trade or at least, you missed the main profit.

Let’s suppose you traded for a while and you decided to set your stop-loss target not too close as always. What happened, for God’s sake? Are you shaking? Sweating? Are you nervous? Of course, you are! Your subconsciousness is warning you’re making a mistake by this deviation from your standard trade. In prior trades by a setting stop-loss order at a particular level, you had the winning trades. So, your subconsciousness doesn’t like changes because, as we said, its primary job is to protect your gains.

So, why are you in conflict with your subconsciousness when you both want the same? Yes, that’s true, but you both have different ways to achieve that. To make a profit. When you want to enter a riskier position or to change the previous performances, your guts will try to stop you. And it might cause you to make emotional decisions. You might be frightened to change anything. Your subconsciousness will rather accept small gains than to allow you to take risks and make great profits. That’s why forex trading is hard sometimes. It is a constant struggle with yourself.

How to become a better Forex trader?

Do you remember when you went to school, you used some tools for the lessons? The same is in forex trading. You’ll need tools to become a better trader. In Forex, trading tools are known as technical indicators. You’ll have to know how to use them when trading. Also, you’ll need to use the fundamental analysis to be able to understand the markets. And, a lot of practice. Yes, we know it is the hardest part since many would like shortcuts. Unfortunately, there is no shortcut. In forex trading, it is essential to have realistic expectations. But also, you must have a bit of courage only once you learn how to trade and what may happen after you make some move.

If you think you know everything after a few weeks of practicing, you’re in big trouble. That is the perfect way to lose everything you have. And to do it quickly. So, what is the proper amount of time to learn trading forex? No one can tell you that because it is different from person to person. But if you keep in mind all these things mentioned above, the odds to become a successful trader could be bigger. Be patient, learn how to profit from trades consistently. That’s the way! If you do so you’ll never ask again why forex trading is hard. It will not be for you.

Bottom line

Why Forex trading is hard is the question for those who want to give up, to quit, and go to sleep. Forex trading isn’t hard, it is a fantastic opportunity to increase your well-being. Don’t expect to be a great trader from the first trade. You’ll make mistakes, you’ll lose money, but you’ll learn. Sooner you accept that the sooner you’ll learn. No one became a great trader by birth. Everyone had to learn how to trade and how to adopt the whole process. It isn’t hard unless you make it hard.

In forex trading, as it is in trading in general, you’ll have a lot of enemies. But remember one thing, the most dangerous enemy for your success is you. Risking too much, betting, trading too often, just pick one or all of these to make losses. The forex market is tricky to read, but you have the trading rules to be able to do that. Rules will protect you from making decisions driven by emotions. Let’s go, play the market! But do it smartly.

11th June 2020
How to Make Money With Forex?

Forex market is like any other market where instead of stocks or bonds people trade currencies and make money.

Trading in Forex is popular low capital trading but you have to know how to make money with Forex. The truth is that you don’t need a huge capital to get started. Also, the Forex market is available 24 hours during working days, but you can’t trade over weekends. Maybe the most common truth about every single person that enters the Forex market is that they are excited, eager to earn a lot, and fast, but only a few of them know how to make money with Forex.

How beginners in forex trading look like?

They are excited by the possibility of quick money earning and becoming rich. Beginners will easily sign up on some platforms without doing the necessary research. They are entering a position like gambling putting money somewhere and somehow, random, without a strategy. Even more, they don’t know how to place a trade, when to enter the position, where to set stop-loss orders or limits, or take profit. Actually they know nothing. And what happens? After several days when everything invested is lost, they will conclude the Forex is fraud and it is impossible to make money there. For them it is completely the truth. With this approach, they will never earn because they don’t know how to make money with Forex.

The other side of the Forex rainbow

Beginners could see successful Forex traders. But they are using tested and well-checked strategies. The strategies that they have developed or discovered thanks to a lot of trials and errors made for a long time. Yes, that’s the way! You’ll have to make many trials and mistakes to understand forex trading and understand how to make money with Forex.

Forex traders have a unique trading style, a unique system, and their own strategy. But they came up to them after deep research, hundreds of attempts, losing a lot of money before they found a profitable strategy that works for them and became successful traders. Well, we are sure that the most successful traders will never talk about their failures but now and then you can find someone ready to share that unpleasant experience. On the other hand, you’ll find a lot of them sharing their great stories about winning trades. Learn from them. Only the knowledge will allow you to make the proper strategy, consistent profits on it every single day. That is possible, of course. But you have to learn how to make money with Forex. And here are some hints.

How to make money with Forex?

If you are a complete beginner without knowledge but willing to start Forex trading and make money from it, the first thing you have to do is to read reputable books. Sorry folks, but knowledge is MUST. The point with reading books is that you’ll obtain theoretical knowledge. It is extremely important to understand the financial markets, otherwise, you’re not able to trade them especially if you want to stay there for the long run.

Good places for sharing knowledge are social networks. Join as many groups as you can and start the conversation. Don’t be shy to ask whatever you need to get better knowledge. Professional traders are also members of such groups and often, they’ll be glad to answer you. Also, interact with other rookies and share your knowledge but dilemmas also. Ask elite traders about the effects of leverage. That could be a very interesting conversation where you could find that trading with excessive leverage could be dangerous. You don’t believe it? Well, using leverage is good but if you use excessive leverage in your trading strategy that can end up as a failure. Using excessive leverage might mean that you are not realistic in expected returns on your investments.

What is leverage in Forex trading, in the first place?

In general, leverage enables you to increase the result of your trading efforts but without developing your resources. Leverage in Forex will simply boost your account while you actually don’t have that money. You are borrowing it to trade with even 1.000 times greater amount than your capital is. That is giving you access to the larger volumes than it is possible with your initial capital.
We are sure that you noticed banners on the trading websites that offer trading with 500:1 leverage. Well, it’s time to explain this in more detail. As we said, leverage is a kind of loan that a broker gives you. You use leverage in margin trading. And here we come to an important point. But leverage isn’t quite a loan even if it is one of the highest that traders can take.

This thing goes right this way

When you enter the forex market, the first thing you have to do is to open a margin account with your broker. Depending on the broker, the amount of leverage can be 20:1, 50:1, 200:1, 500:1 even more. Also, the amount of leverage will depend on your position size. For example, a 100:1 leverage ratio indicates that you have to deposit on your margin account, let’s say, $1.000 to be able to trade $100.000 of currency. These 100:1 leverage or 50:1 are for the standard lot size. If your position is at $50,000 or less the leverage would usually be 200:1.

But compare these leverages with, for example, the 15:1 leverage in the futures market. Well, you might think this forex leverage is too risky. Keep in mind that currency values normally switch by less than 1% within one-day trading. So, this huge leverage is possible because of small changes in the prices of currencies. If currencies are changing more in price, the broker would never give you that much leverage.

More math on how does Forex leverage work

Assume you have a small account with $1.000. A standard lot is 100.000 currency units. If you want to trade mini or micro-lots, this deposit size would allow you to open micro-lots. That is 0.01 of a single lot or 1.000 currency units with no leverage set in place. Nevertheless, you’re looking for a 2% return per trade, which is $20.

So, you decide to employ financial leverage to trade big. Your broker is giving you a leverage 200:1. This means you can open a position as large as 2 lots. To make the long story shorter, let’s do some math.

$1.000 x 200 leverage = $200.000

This equitation shows that you actually have a maximum size position of $200.000. That is 200 times the size of your deposit. So, instead of earning $1, you’ll earn $200. Also, you can lose even faster.
Let’s follow our example, and assume you opened an order with a 1.00 lot. What will happen if the market goes against you? You will have minus 100 pips and lose $1000. Your order will be automatically closed. So, you will lose only your total deposit but you’ll not have money to continue. That’s why it is better to trade a smaller position to reduce the risks.

Use a stop-loss order to reduce risk

This one is probably most important. You can find hundreds of Forex courses on the internet that promise you a strategy that will show you how to make money with Forex every day. A lot of them are scammers, trust us. They just want your money for the low-quality courses. The better way is to start with some simple and easy strategy. It’s not hard to build a suitable strategy.

For example, you notice that the EUR/USD currency pair will rebound from a current support or resistance level. Your first strategy should be to take the benefit of this trend. Later, you can adjust this first strategy by adding some details that will improve efficiency. For example, set a stop-loss when the price goes down to a particular percentage or number of pips to exit the position.

Here is what you have to look out when creating a Forex trading strategy.

Firstly, choose the currency pair. Pick it from the market you know, for instance, avoid currencies from exotic countries if you don’t know them well. If you trade only one currency pair you’ll have better chances to recognize trading signals. Also, your position size will determine the risk you are willing to take in every single position.
Further, find when to set your entry, will you go short or long. Never forget to set the exit level. You must know when to exit the position to maximize your profit and minimize potential losses.
Find when and how to buy or sell your currency pair.

Can you become rich with forex trading?

Some will tell you that it is impossible. And they would be right. The others will tell of course, and they would be right, also. The truth is that the Forex market may give you a chance to earn a lot. This market is much bigger than the stock market, for example. Also, it offers the highest leverage possible in any market. Also, you can trade every day. In essence, the Forex market is a place where small investors with small capital have a real chance to make fortune.

Trading forex is easy, but trading it with constant profit is difficult.

Opposite to what you’ve heard or read Forex trading will not turn your $1.000 account into $1 million. The amount you can earn is determined by how much risk you want to take. If you want to know how to make money with Forex, start with education. Sorry guys, it is necessary. When you learn the basics you can develop your skills further and you’ll start to make money for living by trading forex.

There are traders that are targeting even 100% profit per month. Yes, but the risk they are taking on is almost the same as the profit they are aiming for. In short, if you want to make a 100% profit per year, it’s possible to have a loss of 100% per year. Even if you are trading with an edge your profits will be small without leverage. On the other hand, with leverage, you can profit a lot, but you can produce extreme losses. The main point in forex trading is to buy a currency pair at a lower price and sell it at a higher price. The difference between is your profit.

For example, you have $1000 on your trading account and want to trade the EUR/USD pair with the exchange rate at 1.25. That means that for 1 euro you’ll take $1.25. Keep in mind that the prices are changing every day, from minute to minute. But you believe that EUR will increase versus the dollar.

Let’s assume, you buy 800 euros for your $1000. And the exchange rate changed from 1.25 to 1.35. That’s good for you, and you close the trade at this level and you can exchange your 800 EUR back to $1.080, and your profit is $80. But, if you used the leverage of 1:3000 you would get $24.000 in one single trade. So, you invest $1000 and trade $3.000 000! Pretty good!

Always keep in mind, if you want the higher profits you’ll have to take the higher risks.

Bottom line

One thing is completely true. If you never try you’ll never know how to make money with Forex. With an account with just $1.000 and leverage of 1:100, it is possible to make a lot of money in a single trade. All you have to do is to have at least 1% of the trade on your margin account to use this leverage which is one of the most profitable. That is how to make money with Forex.

27th May 2020
Best Lot Size In Forex – Which to Choose?

The lot size matters because it has a great impact on how much market movement will change your account.

To know what is the best lot size in Forex we have to know what lot size is. Particularly if you just stepped to this world of currency trading. The lot represents the smallest trade size you can set on the forex market. Keep in mind that the lot size will reflect how much risk you are willing to take.

Without a doubt, the forex market can produce unbelievable growth. For beginner traders, it sounds promising but if you don’t understand how the forex market works, your chances to have success are close to zero. Everyone would like to know what is the best lot size in Forex to start the trading. First of all, you have to know that your account must be kept safe. What does it mean?

If you choose the wrong lot size and have several losing trades in a row, which could happen even for the experienced traders, your account is at risk. It can be closed and deleted. For that not to happen, you’ll have to choose the best lot size in Forex. At least the right one.

Everyone will tell you to choose the best lot size, but how to do that? For example, you can use risk management as a great tool. You have to decide what amount you are prepared to risk without consequences. The same comes both for your demo trading account and for your real trades.

The lot size affects how much a market move changes your accounts. For example, a 100-pip move on a small trade is not the same as a 100-pip move on a large trade.

What is the lot size in Forex?

Forex is traded in precise amounts that are called lots. The Standard size for a lot is 100.000 units of the base currency. However, there are other lot sizes such as Mini lot size with 10.000 units, Mikro lot size with 1.000 units, and Nano lot size with 100 units. A lot represents the predetermined number of currency units you can buy or sell when entering the forex trade.

The standard lot in forex trading represents 100.000 units of the account currency. For example, if you are trading a dollar, this means your trade value is $100.000. Since the average pip value for the standard lot is roughly $10, this means every 10 pip move in the forex market will produce you $100 of profit or loss. Experts recommend trading this lot size only if your account is filled with at least $25.000.

As we said, the mini lot size represents 10.000 units based on your account currency. If your account is in dollars, the average pip will be about $1. Do you think it is modest? Well, the forex market can move for 100 pips per day and you can profit or lose $100 in your trading in an hour or two. Experts’ recommendation is to trade a mini lot size only if you have at least $2.000 on your trading account. For beginners, they have a suggestion, also: Avoid this lot size.

The micro lot size was the smallest lot size for a long time. It represents 1.000 units with a pip value of 10 cents. Experts highly suggest to the beginners to trade forex in this lot size. The suggested account value for trading in micro lot size is from $200 to $500, which varies depending on how many pairs you want to trade.

Several years ago, arrived the nano lot size with its 100 units of currency and an average pip value of 1cent. Beginners may start trading this lot size at just $25. You cannot find a lot of brokers that will offer you to trade this nano lot size but it can be useful to figure out how your new trading strategy is working, so you can use this lot size for testing it.

How to choose the best lot size for your forex trading?

One of the best criteria is to determine your risk. You can calculate it in percentages with regard to the rule of 1%. This means in case you have to close out your trade for a loss but your risk has to be less than 1% of your total account. For example, if you have an account with $5.000, you shouldn’t risk losing more than $50 in any position. If your limit risk is 0,5% then you can lose $25 in any position.

Trade size is an important factor since larger lots boost profits and losses per pip. To identify how big your position size should be, use calculation cost per pip. Always calculate it.

How to calculate the trade size?

As with trading stocks, for every open position, you’ll need a stop-loss to set. In other words, you have to figure out where you want to exit the trade if the market starts to move against you.

There are numerous ways to set stops. You can use the main lines of support and resistance to place the order. For example, price action, , Fibonacci, pivots, can help to find these values. The point is to count the number of pips from your open price to your stop-loss order.

The last action in discovering the best lot size is to define the pip cost for your trade. Pip cost means how much you will lose, or gain per pip. When your lot size increases your pip cost will do the same and vice versa. So, how big should trade size be?

Let’s calculate the perfect cost per pip using the 1% risk rule, a $5.000 account, and a stop-loss 10 pips away to find the best lot size in Forex trading. Let’s do some math.

Starting balance = $5.000
1% risk x 0,1
Trade risk is $50
Trade risk : Stop-loss in pips = $50 : 10 = $5
5 : 0,0001=50.000

This means you can trade one lot of 50.000 for $5 per pip cost.

Determine position size when trading Forex

In Forex trading, the position size comes before determining entry or exit levels. That is to say, it is more important. What does it mean? Despite the prevalent thinking that the most important thing in trading is to have the best possible strategy, in Forex trading position size is more important. Your position size shouldn’t be too small or too big if you want to avoid taking too much risk. The same comes with taking a too small risk. Taking too much risk could lead you to drain your account to zero and quickly.

The position size is defined by the number of lots and the size of the lot you buy or sell in Forex trading. The risk you are taking consists of two parts: account risk and trade risk. You’ll have to fit these parts if you want an excellent position size. Your position size doesn’t depend on the market condition or your setups. It even doesn’t depend on your strategy. It is all about account risk limit per trade, pip risk per trade, and pip value.

You can calculate it. Here is the formula

the amount at risk = pips at risk x pip value x lots traded

The number of lots traded represents your position size.
Let’s imagine you have a $5,000 account and you risk 1% of your account on any trade. Your amount at risk is $50. If you’re trading the EUR/USD currency pair, you may decide to buy at 1.2051 and place a stop loss at 1.2041. This indicates you’re willing to put 10 pips at risk or $100.

Let’s imagine further that you are trading in mini lots. Any pip change will have a value of $1 So, put this in the formula.

$100 = 10 x $1 x lots traded

Let’s divide both sides of the formula by $10, and you’ll have

lots traded = 10

This means you are trading 10 mini lots. But this number of lots is equal to the one standard lot, so you could trade one standard lot, right? But what if the result in this formula is, for example, 7,18? That would mean that you should trade 7 mini lots and one micro lot.

Bottom line

The truth is that Forex traders usually trade in mini lots or micro-lots. You might think it isn’t so sexy, but it is a more secure path. When you keep your lot size as small as possible you have more chances to play this game longer and profit. The reason behind this is that these sizes of lots represent the ideal balance between capital you invest and the risk you are willing to take. Moreover, if you use a higher lot size and have less capital on your account, it is more possible to end up with empty hands than to have any profits. In other words, you will have losing trades.

The beginners should start to trade forex in micro-lots size or mini lot size. After they gain experience and confidence, they can pass to the next level. Also, as in any trading activity, you have to maintain balance in your trading account. One of the most important actions in trading is extremely visible here, in forex trading. The usage of stop-loss and target levels is extremely important.

In conclusion, the best lot size in forex trading depends on your capital, experience, goals, risk tolerance. Never risk too much, or the risk you’re not able to handle. Risk management is an essential part of any trade.

21st May 2020
Create a Forex Strategy – How to Do That?

update: 2/1/22

Almost everyone can set up the rules but stick with them when things go bad means that you have confidence in your forex strategy.

Yes, the question of how to create a forex strategy is maybe the most tricky part for all you would like to know more about forex trading before entering the forex market.
The main goal of finding how to create a forex strategy is to choose the one which will provide you the protection against the losing trades but give you a chance to have more winning ones. Otherwise, you’ll lose your money invested in the forex market.

You can achieve this thanks to a proven forex strategy.

To know how to create a forex strategy you have to follow some rules. Well, it’s maybe better to call them steps. By using this set of rules you’ll be able to create any forex trading strategy, from the simplest one to the most complex.
The main problem for the majority of forex traders is that they rely on some strategy that isn’t well tested. That leads them to great losses and failure. Even if you spend hours, days searching the internet, it may happen you’ll not find any suitable for you.

The only solution is to learn how to create a forex strategy that can meet your goals.

Knowing what rules to follow

As we said, there are some rules you have to follow when you start to create a forex strategy. But firstly, we have to highlight one thing. It doesn’t require too much time to come up with a forex strategy, but it does take time and effort to test it. As you can see, you have to be patient with that because it can benefit you. If you create a forex strategy and test it extensively and you see it works for you, it could lead you to earn potentially a lot of money.

Rule No 1

The first rule is that you have to know what kind of forex trader you want to be. Do you want to be a day or swing trader? So, knowing the time frame is the first rule when you start to create a forex strategy.

How to do that, how can you know what kind of trader you want to be?

From the very beginning, you have to decide if you would prefer to look at charts every day, week, month or maybe every year. Also, the time frame rule will answer you about how long you would like to hold on to the positions. So, you have to define which time frame you want to use to trade. It’s true that you will look at various time frames, but this particular one will be your main time frame and the trade signal will come from there.

Rule No 2

The next rule is to detect indicators that will help you to identify a new trend. One of the main goals in forex trading is to recognize trends earliest possible. For that, you’ll need indicators.

For example, the moving average is one of them. As we learned from elite traders and according to our experience, the best way is to use two indicators. It is quite simple. Just use one fast and one slow. All you have to do is to wait until the fast indicator crosses under or above the slow indicator. This is a so-called crossover. Moving average crossover is the simplest and fastest way to notice a new trend. There are many other indicators but this one is more comfortable to use and the easiest one.

But be careful, the last thing you’ll need is to pick a fake trend so you’ll need a confirmation of the trend. For that, you have to use some other indicators. For example, RSI, MACD or Stochastic. It’s up to you to find the one that suits you the best but it will come after you gain more experience in forex trading.

Rule No 3

You have to know your risk tolerance. Before you implement any trading strategy or develop your rules, it is very important to define how much risk you want to take in each trade. In other words, how much money you can afford to lose per trade. However, no one would like to talk about losing trades, but it is crucial for everyone to consider potential losses much before you imagine how big your winning trade can be. So, you’ll have to learn about risk management. Risk tolerance is individual and differs from trader to trader.

Rule No 4

You have to know when to enter and exit the trade, so entry and exit points are extremely important. After you define how much money you are ready to lose per trade, it is time to figure out where to enter and exit the trade to get profit. Basically, you enter the trade as soon as your indicators provide you a sure signal. Some traders enter the trade before the candle in their charts is closed, some will enter when it is closed. It’s up to you and your trading style, meaning are you an aggressive trader or not.

What really matters is to stick to your practices. After all, you are the one who developed it.

Create a forex strategy on your own

When you are looking to create a forex trading strategy, you would like to know how to do that and how to develop trust in the strategy you created. Your forex trading strategy MUST give you a strongly rooted belief that you can trade it and profit. Otherwise, you’ll fail.

So, before you use it, you’ll have to test it.

Before you even start to create a forex strategy you must have some presumptions. You’ll need a feeling that it might work for you. Yes, it will be a struggle but once when things get going you’ll be unbelievably satisfied.

Frankly, creating a forex strategy isn’t an easy job. You’ll have to define what exactly you need. This is extremely important because you’ll need to test your strategy precisely. That means you’ll need to know both entries and exits. But it is a small part of creating a forex strategy.

What should you know before starting to create a forex strategy?

Here are some questions that you may follow to find the answers and when you have done it, you’ll see that you have your strategy. Maybe not all fall into creating a strategy but they will surely help you a lot to create a forex strategy.

First, you have to decide on which currency pairs you can trade your strategy.

So, make a market selection.

The other question you should ask and find out the answer is will your strategy work on different market conditions. For example, is it useful in trending markets, high volatile markets, bull or bear markets?

Also, as we mentioned above, the entry time frame is important. Ask yourself which time frame to use to enter the trade. Would you prefer a lower time frame to entry or high time frame for trend direction? What circumstances have to be met to enter a trade? When it comes to exits you have to figure out do you want to use a fixed take profit level or profit level based on average true range. That is a technical indicator invented to read market volatility.

The decision of which chart setup you’ll use can be of great importance.

The type of chart, what indicators to include, which settings for the indicators, etc.

Further, you’ll have to choose a position sizing strategy. That means you’ll have to decide will you use a percentage-based position sizing. Maybe you would like to increase your position size periodically. Will you use some fixed lot or contract sizes?

Also, just to repeat, define your risk tolerance and money management. You have to determine the risk-reward ratio you want to get. Will you use a trailing stop-loss? Which one: based on percentages, volatility-based, fixed pips values or ticks values? Will you use stop-loss orders and how will you move them?

Do you plan to enter various correlated currency pairs at once? How will you hedge your position? By using inversely correlated pairs or something else? Are you planning to monitor your trades constantly? Would you hold your trades over the weekends?

Maybe the last but for sure not the least, do you follow the news and how frequent?

If you want to create a forex strategy, you’ll need the answers to all these questions. So, take your time.

The next step is backtesting. To get accurate information about how good your strategy is you have to follow your strategy, never change the rules while testing or your data will not be accurate. For testing use a representative sample of your trades based on the questions above. Examine how your strategy is working in different market conditions for different currency pairs.

And you’ll be able to trade for real after you have done all of this. But keep in mind that live trading with real money can differ from your tests because the real money is involved.

Bottom line

So, you started to create a forex strategy. Is it simple? Of course, it isn’t for good reason. But you must have the confidence to trade your strategy and to incorporate it into your trading plan.

Traders-Paradise recommends starting with the smallest lot size your picked platform permits. If it shows the profitability you may keep using your forex trading strategy. Later, you can increase your position size. The strategy you created should work in the long run.

If you prefer to trade stock patterns we are recommending to learn it more from the “Two Fold Formula” book and. Also to test it with a virtual trading system.

17th April 2020
Forex Strategy That Works For You

Having discipline is a key feature of forex trading. How can you have discipline when you are in a trade? One way is to have a trading strategy that works for you. The key part is the profit.

By Guy Avtalyon

It will require some time to find a forex strategy that works for you especially. Every forex trader has a unique style, risk tolerance, amount of money available, and trading goals. So, your forex trading strategy that works for you not necessarily will work for other traders. But some forex trading strategies can be suitable for everyone.

First of all, let’s explain what a forex trading strategy is.

What is a forex trading strategy?

It is a technique that a forex trader uses to discover when to buy or sell a currency pair. There are numerous forex strategies that traders can practice. For example, technical analysis and fundamental analysis. A forex trading strategy that works should provide you to analyze the market and execute trades with clear risk management systems.

A Forex strategy that works

Forex strategies are divided into several organizational structures which is a great help to traders to find a forex trading strategy that works for each trader the best. The main point is to locate the most suitable strategy.

So, we can divide forex trading strategies into main categories: Price action trading that includes Trend trading, Scalp trading, Position trading, Range trading, Day trading, Swing Trading, and Carry trading.

Forex trading demands to put together various factors to form a particular forex trading strategy that works for you. There are innumerable strategies that traders can use. What really matters is to understand and feel comfy with the strategy you create and use. Each forex trader has individual intentions and sources. That fact must be taken into factor when you want to pick or create a forex strategy that works for you particularly.

You can use three criteria to analyze distinct strategies based on their convenience. To find a forex strategy that works you have to determine what time resource is required. Further, what are the frequency of trading chances? And last but not the least, what is the ideal distance to a target.

To compare the forex strategies based on these three criteria, you have to know how efficient they are based on other traders’ experiences. It is always smart to check how a particular forex strategy works for others.

How to find a forex strategy that works?

The crucial is the risk-reward ratio. So, based on historical data and traders’ experience position trading will provide you the highest risk-reward ratio.

Further, you have to examine how much time you’ll need to invest to monitor your trades. For example, scalp trading is a high-frequency strategy so it will require most of your time.

In order to help you to find a forex strategy that works for you, we’ll explain how each of them works.

What is price action trading?

Price action trading means studying historical prices to create technical trading strategies. The advantage of this strategy is that you can use it as a stand-alone. However, you can use it in combination with an indicator. Fundamentals are rarely applied, but sometimes it is smart to include economic circumstances as a supporting part.

The price action strategy actually covers several other strategies.

For example, the length of trade. The strategy gives you an opportunity to use multiple time frames in trading. It is suitable for long, medium, and short-term tradings.

What is most important with this strategy and the most convenient you can use it without any indicators, complex techniques. It can be used based on simple price action.

Few more words about price action strategy

All price action in forex trading comes from buyers (that are bulls) and sellers (that are bears). When the GBP/USD currency pair goes up it’s due to more bulls than bears. Of course, when this pair is going down it is vice versa. So, you may conclude, and you’ll be right, that we have a permanent fight between bulls and bears in the forex market.

This forex trading strategy is all about examining who controls price, bulls, or bears and who’ll control the price.

When bulls are in control and you have proof they will continue that, it is the right time to go long, meaning you can buy. The opposite is when the bears are in control of price. That means it’s time to short, meaning you can sell.

But how to examine who is in control?

This forex strategy that works always is quite simple to use. The essential is to use just two price action methods or techniques.

One is support and resistance zones. The buy and sell zones are easy to identify and add them to your charts. When the price hits these zones there are two possible directions: the price will halt or reverse. So you’ll know that is the right time to buy or sell.

The price action forex strategy that works in all conditions

It doesn’t matter if it is trending, low volatility, high volatility forex market, this strategy will work anyway, and generate profit. It is different from strategies based on indicators that are suitable for particular market conditions. For example, if you use an indicator strategy that is good for the high volatility market, it will slip in other market conditions. It is due to indicators’ inability to adjust for different market conditions. One indicator is good for one market condition.

Price action is what can be adjusted to the time frames, different currency pairs, market conditions, and moreover, and to many traders though. The point of this forex trading strategy is that it literally works for everyone because it keeps the trading simple.

What is the purpose of price action strategy

The best forex strategies use price action. As we mentioned above it is also known as technical analysis. Speaking about technical currency trading strategies, we can recognize two main techniques: follow the trend and counter-trend trading. Both are aimed to profit by identifying and utilizing price patterns.

To profit from price patterns, the most powerful approach is to identify support and resistance. In other words, both show the market tends to bounce back from prior lows and highs. Support means the market tends to increase from an earlier confirmed low. Resistance is the market that tends to fall from an earlier confirmed high. This happens because traders want to predict the next prices against current highs and lows.

What happens when the market approaches recent lows?

It is obvious that buyers will seek what they see as cheap and buy. On the other hand, when the market nears the recent highs, the sellers will lock in a profit since it is a great opportunity to sell at expensive prices. So, recent highs and lows are measures to evaluate the current price.

Also, support and resistance levels. Both happen because traders predict specific price action at these points and play according to their expectations. This has a great impact on the market because their actions can cause the market to go in their direction.

But keep in mind some rules.

First, support and resistance levels aren’t fixed rules. They are a consequence of the action of traders.
When traders follow the trend they actually want to profit from support and resistance break-downs.
Counter-trending is the opposite of trend following. The traders that use this technique will sell when a new high is touched, and buy when a new low is reached.

The main goal in forex trading is the same as it is in any other trading: eliminate the losses and have more winning trades. You can have it if you use the forex trading strategy that works. It is essential to find the one that suits you the best. That means you have to develop a set of rules and follow them if they work. If not, simply change them. However, the best practice is to follow some proven strategy. Especially if you are planning to enter forex trading and you don’t have enough knowledge and experience. Relying on strategies that are not proven and tested might lead you to enormous losses and failures. So, the best chance for you is to find the right forex trading strategy that works and use it.

Stay tuned, we will write more about forex trading and powerful forex trading strategies and techniques.

15th April 2020