November 12, 2007

Successful Forex Trading Is All About Probabilities

When you first start to trade forex, it's very easy to test out a technical indicator or two and then apply it to your first few trades, or even just trade based on your gut feelings, but if you are serious about becoming a long-term successful trader then you need a well-thought out strategy.

A good forex trading strategy is one where the probabilities are in your favour for every single trade you make.

For example, I don't believe in entering a position where one single technical indicator provides a good signal, but instead rely on several indicators to all indicate either a buy signal or a sell signal in order to enter a trade with confidence.

I also use different time frames as well to show the overall trend. For example, if I'm analyzing a 5-minute chart and all my indicators indicate a buy signal, then I will check the 30-minute chart as well to make sure that we're not in an overbought position or that we are in a strong downwards trend.

To demonstrate with a real-life example, the GBP/USD signalled an outstanding sell signal at around 11.45 this morning (UK time) where all of the signals I use were signalling that a downward move was imminent.

The 10, 50 and 100 EMA's were all trending downwards, the supertrend was currently red, and the MACD was crossing over on both charts. Now I was just waiting to see if the support level on the 5 minute chart of 2.0747, indicated by the parabolic SAR, was going to break before entering.

As it turned out, it did break downwards and I immediately entered my position to go short, and it subsequently dropped 150 points (although I banked a lot less than that  )

As you can see in this instance all my signals were indicating a downwards breakout, and therefore providing it breached this support level, this was a classic example of a high probability trade.

So always try and create a trading system that will provide you with high probability trading positions as this is the key to making long-term profits from forex trading.

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