Why Technical Analysis Works Great in Forex Industry?

If you are considering currency trading in the Forex industry, or you are already involved in Forex currency trading, here's a money-making lesson that we can borrow from investors who use technical analysis to help them make investment decisions in the stock market.

The goal of performing technical analysis when currency trading is to predict profitable currency pair movements by analyzing price trends. The principles of technical analysis in the equity markets are the same as those in the Forex currency trading markets. In fact, the only real difference between the two is that the Forex market is open 24 hours a day while the equity markets are not.

This means that certain analytics that take time periods in consideration will need to be adjusted for Forex industry currency trading. Other than that, any of these common forms of equity technical analysis methodologies can be used when currency trading:

Elliott Waves -- Developed by Ralph Nelson Elliott, this methodology is based upon the theory that market performance can be predicted by studying wave patterns that develop over a period of time.

Fibonacci Studies -- Developed by 12th century mathematician Leonardo Fibonacci, this methodology is based upon the theory that changes in trends can be predicted based upon prices interacting with lines based upon certain sequences of numbers.

Parabolic SAR -- Developed by J. Wells Wilder, this methodology is based upon the examination of prices in comparison to "stop and reversal" (SAR) numbers that indicate entry and exit points for a trade.

Pivot Points -- A mathematical formula used to determine when to exit a trade based upon the numerical average of the high, low and closing prices.

As I mentioned earlier in this article, the key difference between technical analysis in the equities market, and technical analysis in the Forex currency trading market, is the fact that it is possible to participate in Forex trading 24 hours a day, seven days a week. That key difference is also the primary reason that technical analysis works so well in currency trading.

In order for technical analysis techniques to deliver maximum results, there needs to be extended periods of time available for patterns to develop and repeat. Because the Forex market never closes, and currency pairs are traded around the clock, definable patterns develop more quickly and the technical analyst has a plethora of Forex currency trading data available to work with.

Because more data means more accurate forecasting results, technical analysts can see better results, in quicker time, when combining technical analysis and Forex industry currency trading.

Your Forex Trading Philosophy

"Easy money" and “finding investment online” is the allure that captivates many beginning FOREX trader. FOREX websites offer "risk-free" trading, "high returns", "low investment." These claims have a grain of truth in them, but the reality of FOREX is a bit more complex.

Mistakes Of The Beginning Trader

There are 2 common mistakes that many beginner traders make when finding investment online: trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.

This kind of undisciplined approach to FOREX is guaranteed to lose money. FOREX traders must have a rational trading strategy and not make trading decisions in the heat of the moment.

Understanding Market Movements

To make rational trading decisions, the FOREX trader must be well educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.

The first step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? This will allow you to identify successful trading strategies and use them.

Accountability

There are 5 major groups of investors who participate in FOREX: governments, banks, corporations, investment funds, and traders. Each group has its own objectives, but 1 thing all groups except traders have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.

Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a FOREX trader you must follow suit.

Money Management

Money management is an integral part of any trading strategy. Besides knowing which currencies to trade and how to recognize entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan. There are various strategies for money management. Many rely on the calculation of core equity -- your starting balance minus the money used in open positions.

Core Equity And Limited Risk

When entering a position try to limit your risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $100,000 you should limit your risk to $1,000 to $3,000. You do this with a stop loss order 100 pips (1 pip = $10) above or below your entry position.

As your core equity rises or falls, adjust the dollar amount of your risk. With a starting balance of $10,000 and 1 open position, your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.

Greater Profit, Greater Risk

You should also raise your risk level as your core equity rises. After $5,000 profit, your core equity is now $15,000. You could raise your risk to $1,500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential. These are the kinds of strategic tactics that allow a beginner to get a foothold on finding investment online and trading in FOREX.

Grab Your Financial Goals Using Forex Trading System

One rule of thumb that every aspiring entrepreneur should remember is that to make huge profits, you should know how to do it by yourself—& not rely on other’s efforts. Being independent from other people will help you determine what things are best for your business.

Such rule applies on all types of investments, including foreign currency trading, or mostly known as Forex trading. It cannot be denied that Forex is the largest existing market around the world, which is estimated to have an excess of 2 trillion U.S. dollars worth of foreign currencies are traded each day. It is larger than the magnitude of the New York Stock Exchange, which is approximately 50 billion U.S. dollars. Thus, Forex market exceeds all combined equity markets around the world.

With such huge wealth circulating around the Forex market, one of your financial goals is to grab a major slice of that $3 trillion average daily turnover in the market. How you'll be able to get a substantial portion of that average turnover if you don't know how you'll h&le your Forex business? Although you cannot live in the market alone (you need business partners &/or financial advisers to help you along), only you can determine what the best Forex business there is for you.

To get huge profits out of your Forex trading career, you need to build your own profitable system—a trading system that will bring your not just hundreds but thous&s of dollars worth of Forex revenues. Such trading system is available on the market, but as previously mentioned, you need to be independent—& you need to have your own Forex trading system that will help you achieve your financial goals.

For new traders, it is difficult for them to device their own trading system since they don't have too much knowledge about the Forex market. However, even a neophyte trader can device a trading system that will fit on his personal preference & needs—in just five easy steps!

Before we discuss the five easy steps towards a profitable Forex trading software, you need to learn first the three main characteristics of a successful Forex trading system. These are as follows:

1. A successful Forex trading system is simple. There is no need for a complicated trading system with too many rules. It is a proven truth that simple systems work better than complicated ones, & they have higher chances of success despite of the “brutal” characteristic of Forex trading.

2. A successful Forex trading system cuts losses & runs profits. Keep in mind that you need a trading system that gets the huge possible profits & eliminates losses quickly, if not instantly.

3. A successful Forex trading system follows long-term trends. You'll never cover your losses if you're just generating small profits. Keep in mind that the Forex market is worth $2 trillion U.S. dollars, thus there is no point in trading in exchange for just small profits if you have the opportunity to make trades for larger revenues. Focus on long-term trends & you'll be able to see better results.

Now, here are the five easy steps in building a profitable Forex trading software:

1. As previously mentioned, your trading system must be as simple as possible. Integrate few yet essential rules & an extensive investment management system.

2. Always look for long-term trends (preferably on a weekly basis), then shift to daily charts & to time entry. This will help you analyze market trends efficiently.

3. The ideal way of trading foreign currencies is through breakout method.

4. Always watch for any break that you won’t on your chart, which is commonly confirmed by stochastic crossed with bearish divergence. This will be your great timing tool whether you'll enter a certain deal or not.

5. You must integrate effective time management within your system. Time is gold & is one of your precious resources. Design a forex trading software that is time efficient—where you can maximize the potential of your time resources to generate huge profits.

Get away with complicated systems; it will just ruin your entire Forex trading system. Build a simpler one & see for yourself how profitable it is.

Forex Market Facts and Currency Trading

More & more savvy investor & entrepreneurs are shunning traditional financial markets, like stocks, bonds & commodities & building their fortunes in the foreign exchange (forex) marketplace.

The reason why they're turning to the all electronic world of Forex trading is its numerous advantages over any type of investments.

Even if you're an experienced Stocks or Commodities trader you'll discover how powerful the Forex is.

You can make $200 to $3000 in less than 30 minutes of work everyday.

Forex Trading is much less risky than trading currencies on the futures market, much more profitable, & a lot easier, than trading stocks.

Why should you trade the forex market?

Here are the reason why...

1) The foreign currency trading market is open 24 hours, it never sleeps. You can enter a position, or exit whenever you want, whenever you're six days a week. You don't need to wait for the opening bell like if you was trading stocks. it is excellent for you as you choose the best time for you to trade.

2) The daily trading volume of the Forex is around $3.5 trillion dollars

It is 30 times larger than the combined volume of all U.S. equity markets. This means that 1,498,574 skilled traders could each take 1 million dollars out of the FOREX market every day & the FOREX would still have more money left than the New York Stock would have daily!

3) You profit in both raising market or falling market.

You have equal potential to profit in both a rising or falling market, because it' s up to you to buy a currency, or to sell it, after you determined the market trend tendency.

4) You can trade from anywhere.

If you like to travel, this is a dream business, you just take your lap top with you & that' s it, you can make money from anywhere in the world, all that you need is to be sure that you can access an Internet Connection.

5) The leverage is considerable.

In fact, you don' t need a lot of money to trade forex, it is recommended to start with $2000, but you can start with $300, then if you have a proved strategy, your investment will grow consequently, as you can trade up to 200 times your investment. You can trade 100,000- unit currency lots with as little as 1% margin, or $1,000. there is no comparison with the stock market where you need a big amount of money to start, if you want to see real profits. & beside that, you need to post  50% margin.

6) Price Movements Are Highly Predictable.

Price movement or highly volatile in the forex, however, the forex market is moving in trends, & you can identify these trends - as they repeat in cycle- with the technical analysis.

7) No commission fees.

Unlike the stock market, brokers don' t take commission on transaction.

To trade forex, you don' t need to have a lot of money to start; you can trade at any time, from anywhere, with a Internet connection, you won't have an order pending because of lack of liquidity, you won't have to work all during the day.

The foreign currency trading market has many advantages over the other traditional investments, & for sure, it will give you more freedom, & more money.