Forex Charts
5 Simple Steps To Big Profit Potential

If you have read the section on Technical Analysis then you will understand that you can build substantial long term profits – but you need to use Forex charts correctly.

Using Forex charts is an art not a science.

Here we will outline how to use for Forex charts in the correct way and the basics for building a successful Forex Trading system.

1. Keep It Simple

Many traders think that the more effort they put into their Forex trading strategy and the more complicated it is - the more they will make in terms of profit.

The above view is totally incorrect.

It’s a well known fact that a simple Forex trading system with just a few indicators, is more likely to be successful than one that is to complicated.

Why?

Quite simply, a simple system will be more robust in the face of ever changing market conditions, as there are fewer elements to break.

2. Trade Valid Data

You need to trade data that is valid and can be used on your Forex charts to increase your odds of success.

The biggest error a forex trader can make is to try Forex day trading – it doesn’t work as the data is to0 short to be reliable.  

Forex day trading causes traders to lose because volatility in short term time frames is totally random and can and does take prices anywhere. Support and resistance levels are meaningless and you cannot trade them.

Stick to either long term trend following or swing trading depending on which suits your personality.

3. Support, Resistance & Breakouts

All successful traders use support and resistance levels to enter and exit the market.

While traders like to buy into support and sell into resistance i.e. “buy low sell high”,

most traders ignore a strategy that can be even more profitable which is buying a break of resistance.

If you want to make money in Forex trading you need to buy these beaks.

Traders like to “buy low and sell high” when they miss a breakout, they wait for the pullback to get in at a “better price” but the price doesn’t pullback and they miss the move.

The fact is that most of the biggest currency trends start from new market highs NOT market lows.

If you want to catch the really big trends then remember that - “buy high sell higher” is very profitable - although its uncomfortable psychologically buying a new market high – it is a proven high profit Forex Trading strategy.

4. Use Momentum Indicators

If you want to win at forex trading you need to learn to trade with price momentum.

One of the biggest errors traders make is to think that they can predict Forex price direction. If you try predicting forex prices, you are hoping or guessing and that is not the way to make money in any business – especially forex trading.

Rather than relying on hope – trade with price momentum.

For example, if you wanted to buy into a support level – you would wait for a test of the support and price momentum to accelerate away from support and enter with momentum. This means you are trading with the odds in your favor and not relying on hope.

All the worlds top traders use price momentum as part of their forex trading strategy and you need to as well.

5. Be Objective Not Subjective

When using indicators to execute trading signals make sure you are as objective as possible. Avoid indicators that involve subjectivity and stick with ones that are objective.

For example, subjective indicators such as cycles, Elliot Waves, Seasonals etc and use indicators that fit objective rules. This will help you stay disciplined and Keep your emotions out of your trading.

6. Back Testing & Curve Fitting

Many traders like to test their systems on back data and they look for perfection and end up “curve fitting” which sees the system profitable in back testing but lose in real time trading.

So what is curve fitting?

Curve fitting involves tweaking rules and parameters so that they fit the data, making the trading system profitable.

A good analogy is:

Shooting at a barn door, a then afterwards drawing a bulls-eye around every shot!

In forex trading, traders try and get or improve profitability by tweaking the system rules to fit the data. They add unique rules and parameters, for different market conditions and different currencies.

Of course, the forex market will move differently in the future and you can’t bend going forward so, the system collapses.

If a system is based on sound logic, it should work regardless of the market conditions or the currencies traded and should contain very few rules or parameters.

Don’t try and bend the rules of any trading system to fit the data - it will not work going forward.

Obey the Rules of the Market

The market is all powerful and you need to obey its rules to enjoy success.

It’s similar to being the captain of a ship – your charts can help you navigate the ocean and earn a living but you need to be careful! If you use your forex charts incorrectly and break the rules you will lose.

Respect the Forex market, use forex charts in the right way and you can pile up big long term profits.