If you want to win at forex trading then using forex charts and technical analysis is a great way to do it. Forex charting is easy, time efficient and works yet; traders still make basic errors that cause them to lose.
Let’s look at the errors made and why you need to avoid them.
1. Forex Charts Predict
A common mistake, traders think they need to predict to win – but of course this is simply hoping or guessing and is destined to see you lose.
If you use charts the correct way, you trade on the reality of price change and trade it, you don’t predict.
There is a big industry in forex trading that says prices move to a scientific theory and you know what will happen next – but of course if prices did move to science, we would all know the price in advance and there would be no market.
Don’t believe any of the prediction nonsense – trade the reality of price change i.e if a price comes to support, don’t predict support will hold, wait for it to move the other way and trade the fact it has held.
Another great way to trade is to trade now breakouts to new highs or lows – it’s a proven fact that most big moves start from these breaks, so make breakouts part of your forex trading strategy.
2. The More Inputs the Better
5 or 6 indicators must be better than 1 or 2 – totally wrong!
The more inputs the more chances are the system will break.
Simple forex trading systems work best and always have.
All you need is support and resistance and a few indicators and your all set.
3. Using Invalid Data
You need to use technical analysis on valid data, where you can get the odds in your favour.
Do not try and use forex day trading or scalping systems the data is to short to be traded. All volatility is random and you can’t use it, so don’t – Either forex swing trade or trend follow.
4. Using Indicators in the Wrong Way
Many traders do this.
They use lagging indicators such as moving averages to enter price, or Bollinger bands are stops. This is not what they were intended to do!
Use an indicator for what it was intended and understand its limitations.
5. Curve Fitting
To succeed with forex charts we have said you need to keep your system simple and if you do, you will avoid another common mistake curve fitting.
Today with powerful software packages, it’s tempting to back test and bend the rules to fit the data to make a profit – this is also known as curve fitting.
If you do this, the system will collapse in real time trading, as no two segments of data repeat themselves in the same way again.
To avoid curve fitting – keep it simple and make sure the rules you use to execute your trading signal are the same for all currencies and all market conditions.
A Simple Route to Profits
Forex charting is essentially simple – You need to use support and resistance and a few confirming indicators and to trade the reality of price change either, with breakouts or shifts in price momentum near support and resistance tests.
If you do the above, you can build your own forex trading system in about a week and you could soon be making profits, big ones, in less than 30 minutes a day.