We have already introduced the concept of forex education and what to look for in part 1 of this article.
Here we are going to show you how to educate yourself for free and build your own trading system to build profits.
Let’s look at the basic concepts of forex education and how they apply to building a method for free.
Let’s start with the basics of a good trading system.
1. The big profits come from the longer term trends
As we have said in our previous article on forex education, one of the most important myths is that day traders make money – They don’t.
Most get slaughtered.
To make money trading, it’s obvious that currency trends reflect the overall health of the economy and major trends can last for several months or years.
So, whats the best way to trade to make money?
You guessed it – Focus on the longer term trends, NOT the short term noise.
2. Defining the longer term trend
The hard bit in forex trading is defining and staying with the longer term trend and not getting stopped out by the market noise.
3. The method
The method we are going to look at is simple to understand and simple to apply and consists of:
Using simple trend lines and other visual tools to determine the direction of the market and important points of support and resistance.
Note: You can’t see the long term trend by using daily charts you must use weekly charts as well as they give the big picture.
It amazes me that a lot of forex education focuses on short periods of data, when currency trends last months or years.
You need to see the big picture and that means using the weekly chart.
Next is the hard bit.
Entering trades
To enter trades you need to have a market timing tool and the best by far is the stochastic indicator.
It’s the ultimate momentum indicator when used with important support and resistance and we also like the Bollinger band as an additional filter.
4. Money management
Most traders are not wrong about market direction this is a myth.
The problem most traders have is there forex education is not good in terms of money management.
You need to be able to enter at the right time, exit correctly and stay with the trend and this is the hardest part of trading.
Most traders simply have no grasp of money management.
Our system will show you how to handle risk and keep you in the longer term trend.
5. Discipline
This is always spoken about when you read any forex education but its quite simple really.
If you have a system that’s simple to understand and you have confidence in it you can follow it through the bad times.
Most traders simply blindly follow guru’s and give up as they lose confidence.
Keep in mind if you don’t have the discipline to follow your method you don’t have a method at all and are guaranteed to lose
6. What’s your edge?
This is a question any trader should ask themselves.
What makes you think you will be in the minority of winners?
If you don’t know your edge – you don’t have one!
A system for long term profit
So what edge does our system have?
It’s geared to the longer term trend, trades infrequently, has money management to control risk but most importantly will take short term equity down turns to hold the big longer term trends.
You can decide for yourself by reading part 4 of this forex education series, where we will show you where to find info on the net to trade a system for profit
Got a Question? Ask.
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Frequently Asked Questions
Does the method really works for intraday traders ...
By: chim | 26-10-2007
Does the method really works for intraday traders ? It seems like breakout strategy ?
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