Many steps To Make Money On The Forex Market

FX trading is trading the currency of a country for the currency of a different country at their current exchange rate. Futures trading, which is based on a currency's future value is different all together but many people get the two confused. You may also see Forex referred to as FORX, FourX, or even 4X when you perform a search on the internet. All Forex trading is conducted through brokers or market makers so it is important to do your research before funding a margin account which is required for trading.

If you are interested in trading on the Forex, it is important that you do your research. Read what others are saying and if they have made or lost money trading on the Forex. Learn the language of trading on the Forex.

Don't invest more than you can afford to risk! Funding your margin account should only be done with funds that, if lost, will not significantly impact your financial well being. Trading on the Forex involves a certain amount of risk as does investing in the stock market. Don't invest your life savings on the Forex, especially if you are a beginner to currency trading. A good rule for beginners is to only invest an amount that you can afford to and then build upon that as you make successful trades. You should not invest money that you must have to live on in either the stock market or Forex.

How Do Forex Markets Move?

If you want to successfully trade the various forex currencies, you need to have a basic understanding of how forex markets move because they all follow similar patterns.

The best way of demonstrating this is by looking at long-term charts of various currency pairs. Let's take the GBP/USD as an example.

If you look at the 30 year weekly chart and draw an EMA (100) to show the trend, you will notice that apart from a few periods of sideways movement, the pair is nearly always trending upwards or downwards, and often for long periods of time.

For example, between 1981 and 1985 there was a long sustained downward trend where the price went from about 2.4500 to around 1.0400.

Similarly it then rebounded and trended upwards reaching it's peak in 1992, and if we look closer towards the present time we can see that the GBP/USD has been trending upwards since 2002.

So the point I want to make is that the forex markets generally move in trends (short-term and long-term), so by identifying these trends you know you should only be trading with the trend and not fighting against it. Your decision therefore is when to enter, and not which direction you should be trading.

Forex Day Trading - When To Stay Out Of The Markets

A lot of FX traders like to trade the shorter time frames such as the 1 and 5 minute charts, but it is very difficult to make consistent profits this way. This is because you have to contend with all the noise on these charts where the price just seems to drift aimlessly in a seemingly random fashion. Therefore there is one golden rule which you should stick to when trading these short time frames.

Basically you should always stay out of the markets when the ADX technical indicator is below 20. This indicator tells you whether or not a clear trend is in place and the general rule is that if it's below 20 then there is no trend.

So therefore you can instantly tell whether you should be trading the markets or not. Of course when the ADX is below 20 it's still worth keeping an eye on this particular currency pair because a rise above 20 could signal the start of a new trend, particularly if the directional movement indicators cross at the same time.

Can You Trade Forex Markets Without Using Technical Indicators?

If you talk to any FX trader, you will find that the vast majority of them use technical indicators to make their trading decisions. So does that mean that you have to have a basic knowledge of technical analysis in order to profit from forex trading? Well not necessarily.

Technical analysis is of course very useful and many traders couldn't trade successfully without consulting their favoured indicators, but you can be a profitable trader without using technical indicators at all.

Instead you can simply base your trading analysis on fundamental analysis, ie taking a longer-term view of where a particular currency is headed using the current economic situation and future economic forecasts.

Just take a look at George Soros who in 1992 took a short position on the pound and as a result pocketed over $1bn when the Bank of England withdrew the pound from the European Exchange Rate Mechanism. I think it's fairly safe to say that this position was more likely to have been based on economic and political conditions rather than an overbought RSI or stochastics.