Simple money making ways through forex

Forex is really a good option for you to make money. So, if you think that you want to make money forex, start educating yourself about forex and the ways in which currencies get affected by the changes in the economy. You can do research over the Internet about the changes in the forex market, you can check news, you can try to get websites that impart idea on currencies and forex trading issues and nuances.

If you will be able to know the details of the forex trading, you may be able to easily make money through your trade and investment. You will be required to know more on the forex charts, the forex tables, the different types of trades used in forex, the main OTC trading system and so on. You should also know that there is no physical boundary in forex trading.

You need to know about forex quotes and which pair of currencies is going to work the best for you. If you are new to this trade, the best thing or strategy for you to follow would be to follow the market trend and what other experienced traders are doing.

So, you can see that if you are able to learn about forex trading and if you can follow the market closely and the reacted changes, you may easily be able to make money through forex trading.

About The Author: This article has been written by Angela Sanders. She is associated with Oak View Law Group, A Trustworthy Bankruptcy Law Firm. She writes articles on various financial topics, such as Debt Consolidation, Debt Settlement, Bankruptcy, Investment Opportunities and Monetary Policies etc.

1. Leading indicators

This type of indicators tend to give traders buy or sell signals before market makes its turn. the leading indicators predict a top or a bottom of a market but they do not predict specific price levels or duration of a move. Although there are so many leading indicators in theory, it is hardly to find ones that truly lead the markets.

The Leading indicators are considered to be the most useful for the beginning traders since they allow ample time for traders to prepare their trades.

One thing to remember when applying leading indicators in trading is they are just telling that a move is going to happen but it has not begun yet.

While it seems like leading indicators offer traders the best of all worlds, there are drawbacks when using such indicators.

One major problem occurs because it may point traders to enter a trade too early. Exposure to price fluctuations that occur before the beginning of the indicated up or down trend may cause traders to bail out early. When traders are limiting risk in a particular trade but have bought early according to a leading indicator, they may be stopped out and lose all potential for profit.

2. Time current indicators

This type of indicators tend to turn higher or lower at about the same time that a market does. They can be very helpful in long-term trading, and are considered such indicators practically as useful as leading indicators.

Though, the time current indicator does not expose to pre-move price fluctuations as much as the leading indicator does. However, traders have to make their decisions about buying and selling quickly with indicators, as the price should be making its move at the same time they are taking a position.

3. Lagging indicators

This type of indicators are those that lag behind market movements. The market moves,and the lagging indicator moves after it. These indicators are also referred to as trend-following indicators because they just follow trends and do not attempt to predict them.

Using lagging indicators to make decisions about buying and selling gives traders disadvantage since this will results in buying and selling after the tops and bottoms of market trends.

The goal in using a lagging indicator is that traders will be able to profitably grab a significant portion of a trend before the indicator changes direction again.

In the efficient market theory, people buy and sell on the basis of their knowledge, so the latest price represents everything known about the market. Since everyone has the same information about market, the price should reflect the knowledge and expectations of everyone. Therefore no one should be able to beat the market since there is no way to know something about market that is not already reflected in the market’s price.

Because markets know everything and no one can beat them, trading is like playing chess against someone who knows more than you. Hence, do not waste your time and money, just trade simply by indexing your portfolio and selecting securities based on volatility.

However, there is ample evidence to dispute the basic claims of this theory since there are traders who constantly and eventually make money, what about them?

The efficient market theorists say that winners are plain lucky. Most people make money at some point, before bleeding it back into the markets.

This is obviously incorrect. Because there are people who keep outperforming markets year after year. One of them is Warren Buffet, brilliant traders, says that investing in a market in which people believe in efficiency is like playing poker against those who believe it does not pay to look at cards.
Besides the efficient market theory, there is one of the largest pieces of theoretical garbage. The theory correctly observes that markets reflect the intelligence of all crowd members.

Most traders can be rational when the markets are closed. They calmly study their charts and decide what to buy and sell, where to take profits, and when to cut losses. However, when the markets open, they don’t trade their plans.

Trading is partly rational and partly emotional. To be a successful trader you must keep your cool at all times and take money from aroused amateurs. People are more likely to be rational when alone, and grow more impulsive when they join crowds.

All the while, the intelligent trader follows his rules. He may use a mechanical system or act as a discretionary trader, reading his markets and putting on trades. Either way, he follows his rules rather than his gut. That is his great advantage.

That’s why traders must always operate within various time frames. The most profitable positions will align to support and resistance on the chart one amplitude above the trade and display low risk entry points on the chart one amplitude below.

Price evolves through bull and bear conflicts in all time frames. When ongoing trends are not in gear with specific charting periods, trade preparation may become subjective and dangerous.

The perfect opportunity to enter a trade rarely exists. An obvious breakout on one chart may face resistance on the longer-term view just above a planned entry level. Or a shorter-term chart may display so much volatility that any entry becomes a dangerous enterprise.

Successful trading needs a careful analysis of conflicting information for entering a trade only when favorable odds rise to an acceptable level. If you face with a good setup in one time frame but marginal conditions for those surrounding it, use your experiences and skills to evaluate the overall risk. If risk/reward ratio is in a tolerable range, consider execution even if all factors do not favor success.

However, chart information priority parallel chart length. For example, major highs and lows on the weekly chart carry greater importance than those on the 1-hour chart.

Profit opportunity aligns to specific time frames. This trend relativity error often forces a new position just as the short-term swing turns sharply against the entry. Trend relativity errors rob profits on good entries as well. No one wants to leave money on the table. Natural wave motion may whipsaw the position sharply and sends the trade into a substantial loss well before reaching a reward target.

Most traders should never change their holding period without detailed pre-planning. Specific time frames require unique skills that each trader must master with experience.

Begin with a sharp focus on the next direct move within a predetermined time frame. Prepare a written trading plan that states how long the position will be held and stick with it. Establish a profit target for each promising setup and then reevaluate the landscape that price must cross to get there. Consider the pure time element of the trade. Decide how many bars must pass before a trade will be abandoned, regardless of gain or loss.

Each time frame attracts a specialized group of traders that interacts with all other groups through the universal mechanics of greed and fear. This results in trend convergence, divergence through different time lengths. Successful traders improve performance when they adjust their chart view to match the chosen holding period.

Successful trade execution aligns positions through several time frames. By doing this, first choose a primary chart screen that its time frame reflects the holding period and matching strategy. Then study the chart one magnitude above that period to identify support, resistance and other landscape features that impact risk/reward ratio. Lastly, shift down to the chart one magnitude below the primary screen and identify entry points.

The trading system that uses three different time frames, defined by Alexander Elder in his book “Trading for a Living”, is called Triple Screen System.

Time frame analysis above and below the current setup chart will identify opportunity and risk in most cases. For example, when a promising setup appears on a 1-hour chart, a trader checks the daily chart for support and resistance but uses the 5-minute chart to time execution to the short-term flow of the market. This approach works through all time levels.

Amateur traders routinely fail at time management. Many never identify their intended holding period before they enter a trade. Others miss major support and resistance that appears on the next above magnitude chart. Some sit on nonperforming positions for weeks and tie up important capital while excellent opportunities pass by.

In all cases, time works as efficiently as price since all time frames display unique properties that enhance or damage the odds for profit.

Every opportunity arrives with a time shadow hanging over it.  You have to focus attention on important feedback at the exact time that the information will likely impact that market. It may offer an execution window that closes in minutes or offer an exit that should be taken immediately when it arrives.

Successful traders must manage time as efficiently as price. Use both price and time triggers for stop loss management. Time should activate exits on nonperforming trades even when price stops have not been hit. Execute only when time bias improves the odds for profit.

In trending market, fast-moving stock’s prices attract attention and awaken great excitement. Many novice traders fever with these hot plays. The financial press makes these more danger with frantic reporting of big gainers and losers. But gaining profits by momentum trading requires great skill and discipline.

Typically, price seeks equilibrium.  When unsettling events destabilize a market, counter-trend force emerges quickly to put it to a stable state. This inevitable backward reaction follows each forward impulse. Novice traders fail to consider this action-reaction cycle when they enter momentum positions. They blindly execute trades that rely on a common but dangerous trending-following strategy, then trend reversals appear suddenly.

Novice traders enter small price swings on the false assumption that the action represents a new breakout for a major trend. Although these errors may not incur large losses, they damage equity and confidence at the same time.

Some traders, in the other hand, may appreciate the market’s complexity and realize that trading mastery requires many diverse skills. As price usually cycles through regular phases, strategy needs to adapt quickly to capitalize on the current crowd. So, swing trading, that execute right near support or resistance, is a powerful alternative. This classic trading style requires more precise planning than momentum. However, it allows measurable risk and highly consistent rewards.

Swing traders seek to exploit direct price thrusts as they enter positions at support or resistance. They analyze chart pattern characteristics to indicate short-term market inefficiencies. The swing trading strategy is a time frame independent methodology. Some traders are able to apply this strategy by never holding a position overnight.

Nowadays, the revolution in high-speed trade execution opens swing strategies that last for minutes instead of days. Dependable price patterns appear on charts in all time frames, swing setups offer the short-term charts the same opportunities that appear on longer-term charts.

Swing trading provides a natural framework to identify changing conditions and apply new methods to exploit them. However, as its core, swing trading is not the opposite of momentum trading. During the times that strong price movement characterizes a market, disciplined momentum strategy becomes the preferred swing trade. In this way, modern swing traders can apply the principles of risk management and price boundaries and use momentum’s greed to their advantage.

In the other hand, some traders trade against deviations and for a return to normalcy. It is normal for prices to remain within channels. Most breakouts are exhaustion moves that are quickly aborted.

Therefore, they like to trade against them. They sell short as soon as an upside breakout stalls and buy when a downside breakout stops reaching new lows.

There is nothing wrong trading breakouts, since it can produce spectacular gains for traders when a major new blows out of a channel. However, most breakouts are false and are followed by reversals.

The following are some recommended rules for trading with channels:

1. In cases of using a moving average channel, when channel’s slope is relatively flat, it is almost always good to buy near the bottom of its trading channel and good sell near the top.

2. In trending market while a channel rises sharply, an upside breakout of the upper channel line shows very strong bullish momentum. This indicates that you will probably have one more chance to sell in the area of the highs that are being made. When the market returns to the upper channel line, it is time to sell your long position.

3. The above rule can also be applied in reverse during sharp downtrends. A breakout below the lower channel boundary indicates that a pullback to the moving average is likely to occur, offering another opportunity to sell short. When the market returns to the bottom of channel, it is time to cover shorts.

The better trading signals are given by a combination of channels and technical indicators. Most well-known signal from indicators is when they diverge from prices.

Let’s continue with some recommended rules for combination of channels and indicators:

4. A sell signal is given strongly when prices reach the upper channel line while an indicator, such as RSI, traces a lower top and creates a bearish divergence.

5. A buy signal is given strongly when prices reach the lower channel line while an indicator traces a higher bottom and creates a bullish divergence.

6. Go long below the moving average when the channel is rising, and take profits at the upper channel line. Go short when the channel is falling, and take profits at the lower channel line.

Channels help traders because their boundaries show where to expect support or resistance to come into the market.

Support is where buyers buy with greater intensity than sellers sell. Resistance is, in vice versa, where sellers sell with greater intensity than buyers buy. Channels show where to expect support and resistance in the future.

Construct a channel

There are several ways to construct a channel. Here, let’s see the four simply ways.

1.  By drawing a channel line parallel to a trendline. The channels parallel to trendlines are useful for long-term analysis, especially on the weekly charts.

2.  By drawing two lines parallel to a moving average, one above it and another below. The channels around moving averages are useful for short-term analysis, especially on daily and intraday charts.

3.  By drawing two lines parallel to a moving average just the same as above, only the distance between each line and the moving average changes depending on the market’s volatility. This kind of channel is well-known as Bollinger bands.

The channels whose width depends on volatility are good for catching early stages of major new trends.

4.  By drawing a moving average of the high price of bars and another of the low prices of bars.

Besides the boundaries of a channel, its slope can be used to identify a market’s trend. When a channel lies flat, you may trade all swings within its walls. When a channel rises, you should trade only from the long side, buying at the lower bound and selling at the upper bound. When a channel declines, you should trade only from the short side, shorting at the upper bound and covering at the lower bound.

In some kinds of channel, the width of channel depends on the coefficient selected by traders.

For example, a moving average channel can be drawn as follow.

Upper Channel Line = EMA + Channel Coefficient EMA
Lower Channel Line = EMA – Channel Coefficient EMA

However, you need to adjust channel coefficients until a channel contains 90 percent to 95 percent of the price action. As the normal prices should be inside a channel and only unusual events push them outside.

Adjust channel coefficients at least once every three months to make a channel contain 90 percent to 95 percent of prices.

If prices keep bleaching out of a channel and staying outside for more than a few bars, that channel should be widened.

Also, if there are too many reversals within the channel without reaching its boundaries, that channel should be tightened.

So how do you go about choosing your indicator? The answer is not as hard to find as it may seem.

There are literally thousands of indicators to choose from. The place to begin is to first make a decision as to the type of strategy that you are going to trade. This will probably eliminate half of the alternatives. The indicator you choose should be designed for the type of strategy you are going to trade. This decision will also force you to decide what type of trader you will be. It is very important that you make some decisions on the big picture, the overall strategy, before you get to the details.

The indicator should not be totally derived from price. Traders, particularly novice traders, that lose money consistently are inevitably using price-derived indicators. The more removed you can be from direct price correlation, the more reliable and profitable your indicator is going to be. If you can use volume, range, advances and declines, new highs or new lows or open interest to modify the price-based indicator, it should become more effective.

Another way to deal with this issue is to combine non-price indicators with those that are price derived. This way you can start to filter your price-derived indicators with other types of data.

If you decide to use a standard indicator, its performance will improve if you use it in a different manner than it was originally intended. Since that if 95% of all traders lose money. If you want to trade profitably, you must trade differently than the other 95%. That means using standard indicators in unique ways.

The indicator and the way it is calculated should make sense. Study the formula and see if it is logical. Try to understand why this indicator is supposed to work and what market
action it is supposed to represent.

The indicator you choose should be profitable or close to break-even in its pure state without optimization or money management improvements. Starting with an indicator that loses money and trying to fix it is a much more difficult task than starting with a profitable indicator. If you start with a profitable base indicator, the chances of developing something that you would actually want to trade are greatly increased.

Become an expert on this indicator. Learn its personality and its little quirks.

Amateur traders think that they can fix a strategy through optimization. They think that even if a strategy loses money, they can fix it by optimizing the lengths of the indicators. It is wrong. Optimization should never be used to make an unprofitable strategy viable. It should make a profitable strategy more profitable. It should only be used for tweaking the profits. Optimization should never be used to make a bad strategy good.

When you have designed a viable strategy and improved it through optimization. You are now ready to trade the strategy. If you are truly going to run our trading like a business, you have to implement the strategy as designed. Do not beat the strategy, try and second-guess the strategy, by personally filtering the trades based on your own ideas.

Corrupting the strategy through filtering trades with personal bias is a major problem that beginners face. There are many possible distractions during the trading day, unusual market action, and important breaking news and etc. But reproducing the strategy in real time is a bad idea. You have to trade it exactly as it has been designed and tested in the past. The distractions during the day may make it difficult to implement the strategy exactly as it was designed.

If you have trouble putting on your trades as your strategy, you should make sure that the characteristics of the strategy fit your own trading style, that you can accept the risk and drawdown and comfortably take all of the losing trades. If you cannot take the losses and drawdown, you must either fix the strategy or find a new one that is more in harmony with your personality.