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.
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