FX Island

Forex trading education naturally falls into two parts. First the easy part, learning technical indicators, how to use a trading platform, the terminology, etc.

Secondly Forex trading education must include information on the mindset of a successful trader and the disciplines that need to be learned in order to handle the emotional and mental demands of trading in the market place.

Here we provide a list of 7 guidelines for using trendlines as part of your Forex trading education using technical indicators.

Trendlines may be regarded by some as one of the weaker indicators although still valuable. They can be powerful when used in combination with other factors. That’s why an effective Forex trading education doesn’t rest on a single magic formula but rather involves an investment of time and energy as the new trader learns to combine the input from a number of tools to reach a clear decision.

When using trendlines to identify an optimum entry point for a high probability trade keep the following points in mind:

1. Trendlines on lower time frames such as 5 minute, 15 minute, or 30 minute, do not have much significance by themselves. Take more note of price reaction around trendlines on the higher time frames, specifically the 60 minute, 4 hour, and daily chart.
2. Trendlines on a daily chart carry a high significance as this is the chart many traders of large institutions use. They do not participate in intra day trading but rather look for position trades as they commit large sums of money to a transaction. The daily chart is often their point of reference.
3. Draw general trendlines across the significant lows in an uptrend or the significant highs in a downtrend and use them as a point of reference to show where support or resistance is likely to be found.
4. If you want to get more specific, use the Tom DeMark method of drawing trendlines. This technical advisor recommends using the current swing high or swing low, depending on the trend, and then connecting that to the previous swing high or low (to the left on a candlestick chart). The line is then extended out into the future. These trendlines can be constantly updated as new highs and lows are reached.
5. For trendlines to be effective indicators, they must be used in conjunction with other technical indicators. So if a trendline is crossed by a support/resistance line, or a pivot point, or a Fibonacci retracement or extension level, you now have a combination of factors indicating this could be a suitable entry point.
6. Do not use trendline breaks or bounces as an entry signal by themselves. They do not provide a strong enough signal. If you add this crucial piece of information to your Forex trading education you will minimize the number of trades you regret entering.
7. Add these two trendline methods to your Forex trading education:

• When price has an upward or downward momentum (as opposed to moving within a consolidation channel), look for times when price will come back to bounce the trendline before resuming the momentum.
• When price breaks a trendline, rather than enter a trade at that point, choose a more optimal entry point by waiting for price to return and test the back side of the trendline that has just been broken. This will not always happen and you risk missing being taken in. That’s trading! But more often than not this will happen and you get an excellent entry point.

As part of your Forex trading education, use your demo account to experiment using trendlines.

Remember they have limitations. In themselves they can give a false signal. Used in combination with other technical indicators however, they form a more complete picture, giving you a clearly defined graphical representation of where price is and where it is likely to go.

Keeping the seven point checklist above in mind should help keep you out of troublesome trades when using trendlines!

With a daily turnover estimated at around $1.8 trillion the answer to the question “Does the Forex make money?” is pretty obvious.

The bigger questions is: “For whom?”

With the opportunity for anybody and everybody with a computer and an internet connection to participate in the Forex to make money in recent years, thousands of individuals have had some exposure to the challenges of Forex trading.

Is The Forex A Fool’s Game?

According to some estimates, the vast majority, perhaps as high as 95%, lose money.

Is it a fool’s game, just an elusive dream to trade the Forex to make money to try and achieve financial security?

In view of the high failure rate, it is prudent for anyone who is contemplating entering Forex trading to do their homework first. While the majority fail to make consistent profits from the Forex, a minority do, and some of them make huge profits from the Forex.

The Realistic Mindset

What is the key? A realistic mindset when approaching the Forex, a commitment to learn and get a proper education, and then, application of the knowledge learned in a disciplined way backed up by perseverance!

For an individual who has already had experience trading stocks, or futures, the learning curve may only involve a few months when switching to the foreign exchange market.

For the complete novice the learning period will probably run into years, anywhere from 1 to 3 years according to some estimates.

During this time the novice will have to first get acquainted with the workings of the Forex, learning the terminology, and working with a demo account on a trading platform supplied by an online broker.

Months will need to be spent sitting in front of a computer screen studying candlestick charts, getting acquainted with specific patterns, learning to recognize high probability setups. There is no shortcut for this part of the educational process if you want the Forex to make money for you.

The Most Critical Factor

Then comes the most critical part of all: developing the mental discipline and emotional control necessary for safe trading.

The Forex can be a minefield for anyone who is not in control of their emotions. For a person who has a gambling instinct, the Forex will suck their account dry in a very short time. The Forex is not a game of chance.

Successful trades are the product of careful market analysis, an understanding of how the market moves acquired from months and years of experience, and a strict control of equity management.

Even with all that input, the successful trader will still regularly lose trades. As long as there are a greater number of trades that are successful, the Forex will make money for you.

Make An Informed Decision

If all this sounds overwhelming and a little foreboding, you are getting the picture of what is involved once you start down the road as a Forex trader.

On the other hand, this is a job that can be done from home, with as many hours committed to it as you wish to allow, and in the long term, once the skills have been acquired, the Forex can provide a substantial form of income.

Will the Forex make money for you? That is an individual question and will depend on all the variables discussed above. Do your homework, check out educational materials, examine your current workload and circumstances, be honest about your personality style, and then make an informed decision.

Why do hundreds of thousands online traders and investors trade the forex market every day, and how do they make money doing it?

This tips clearly and simply details essential information on how to avoid typical pitfalls and start making more money in your forex trading.

1. Trade pairs, not currencies – Like any relationship, you have to know both sides. Success or failure in forex trading depends upon being right about both currencies and how they impact one another, not just one.

2. Knowledge is Power – When starting out trading forex online, it is essential that you understand the basics of this market if you want to make the most of your investments.

The main forex influencer is global news and events. For example, say an ECB statement is released on European interest rates which typically will cause a flurry of activity. Most newcomers react violently to news like this and close their positions and subsequently miss out on some of the best trading opportunities by waiting until the market calms down. The potential in the forex market is in the volatility, not in its tranquility.

3. Unambitious trading – Many new traders will place very tight orders in order to take very small profits. This is not a sustainable approach because although you may be profitable in the short run (if you are lucky), you risk losing in the longer term as you have to recover the difference between the bid and the ask price before you can make any profit and this is much more difficult when you make small trades than when you make larger ones.

There will be more to come.

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While the American economy is sputtering, US corporations are earnings record profits and stock market capitalization is soaring. These seemingly contradictory trends are being driven by the decline in the USD. Multinational corporations, especially those based in the US, are conducting a growing portion of their business abroad and subsequently, their foreign sales are booming. When corporations convert these profits from the currencies they are booked in back to USD, on which their financial statements are based, they are realizing the equivalent of a 5-10% bump from foreign exchange gains. Many of these companies are web-based, such as Yahoo, Amazon and eBay. Ironically, as the economy sags, betting on these types of companies may be akin to a bet against the USD.