Thursday, January 1, 2009

How to Be a Successful Chartist and Make Huge Gains

It's no secret technical analysis and accurate interpretation of Forex charts are useful tools for making money on Forex. In this article, we'll give you an insider's view of how to use these important skills.

To start, let's review two beginner mistakes you shouldn't make. These include:

First, don't confuse charts with fortune tellers! When you spot a trend, don't think you know the future. Instead, wait and see if prices move in the anticipated manner, and always test out your expectation. Second, simplicity is bottom line in Forex trading systems. Eliminate or avoid unnecessary factors, and you reduce the number of "breakable parts."

In a nutshell, you want to build an uncomplicated trading system rooted in technical analysis. Here's how.

1. Levels of Support and Resistance

When you look at Forex charts, you'll notice they zigzag a lot, but only rarely break through certain levels, known as levels of support and resistance. Your goal is to determine when trading will hold to these levels, and when it will break through.

2. Look for Break-Through Movement

The common wisdom about levels is this: When charts approach a support level, buy. When going toward a resistance level, sell. All in all, this is a creditable rule of thumb, but it relies on verifying your hunches about the levels with data. However, a better system looks specifically for times when old support or resistance levels will be broken. New market courses are always continuations of some new local high or low. Learn to spot these breaks and you can trade them to immense advantage.

3. Rely on Data, Not Fortune-Telling

To get this system to work, you have to forget about telling the future. Instead, make hypotheses -- and then look for supporting evidence that your hypothesis is true. For example, use indices that track momentum to see whether the level really will break or hold. Two highly effective candidates for this are the Relative Strength Indicator (RSI) and the stochastic index. If you aren't familiar with them, half an hour of research will enable you to not only spot accelerations and decelerations, but also to use that information to verify or reject your hypotheses.

Consider a situation where prices attain the resistance level, but then go lower. If momentum indices show that this break is accelerating, you should go short. In general, when prices break through a level, and that trend is accelerating -- trade the break.

4. Trade With a Long-Term Point of View

Frequent trading won't make you anything but tired. What will get you closer to your Forex goals is being right -- and that means waiting for the situation where you have high probability of being right. That might take several weeks, or even months.

Simplicity is Best

If you want a vigorous and uncomplicated system for Forex, you couldn't go too far wrong relying on straightforward column graphs, elementary levels of support and resistance, and a few indices of acceleration for trend verification or rejection. This sort of game plan will assist you in finding those high-probability situations that you can profit from.

And remember, avoid unnecessarily convoluted procedures. With an uncomplicated approach, good funds oversight, and self-control, you can turn a profit from Forex with as little as half an hour daily.

For information on Forex Signals or any advice on trading the Forex Market, please visit us at Forex Advice Blog - Free Daily Forex Advice.

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