So you have an account (demo or live)! What next?

[Alan]

So your up and running!

Which currency pairs should you look at for making trades?

I think most people would suggest GBP/USD, EUR/USD and USD/JPY. The reason behind this is that they have the biggest liquidity and tend to move around more.

So you have decided to trade on GBP/USD. Should you Buy or Sell?

This is where it gets difficult. The important decision is yours and only yours. The answer comes from research and understanding, whether it is from online blogs, Forex predictions, Technical or Fundemental indicators.

Without creating a whole arguement on which is better because I don't believe a single one is correct all the time and some indicators lag the market. It is best to get familiar with probably at least 3 ways of reading the market. When your confident that they are all showing you a single prediction then it's time to place the trade.

Below is a list of some common methods of analyzing the market:

Simple Moving Average (lags the market)
Bollinger Bands (lags the market)
Elliot Waves (predictive when present)
Fibonacci Retracement (predictive)

Remember a indicator that lags the market can not be wrong, but a predictive one can.

There is also a fair amount of material written on understanding the Candlestick patterns and sequences.

How much should I trade?
My answer to this is as little as possible, a single unit of whatever your account will allow. For some this may be 1, 10, 100, 10,000 or 100,000.

When should I get out of a trade?

Again this comes with experience of reading and understanding the charts, Resistance and Support levels and any data releases that have happen or are about to be released.

Most investors fail or lose money (me included) by holding on to losing trades to long and taking profit to soon.

A basic rule is to use a risk to profit ratio of 1:1 or 1:2

I made a profit or took a loss. What now?

Understand your trade and what made it a success or not.

[Jim]

Hi Alan,

I think we could have quite an interesting debate here, because I disagree with some of those points!

For me personally, trading a system is the only way to trade. This is easy for me to say, since I'm a programmer, but I won't trade any system that can't be programmed into a computer and "proved" to be successful in backtests. Fundamental analysis is not in the frame for me, and not only for that reason!

There follows my starter for 10. Much of it probably won't make a whole lot of sense just yet, but the sooner we get started the sooner we'll finish.

Which currency pairs should you look at for making trades?

One out of GBP/USD, EUR/USD and USD/JPY is a good as place as any to start. They also tend to have the tightest spreads.

So you have decided to trade on GBP/USD. Should you Buy or Sell?

This is where it gets difficult.

The decision is easy. You buy or sell when your system indicates you should buy or sell. Designing your system is the difficult bit!

Without creating a whole argument on which is better because I don't believe a single one is correct all the time and some indicators lag the market. It is best to get familiar with probably at least 3 ways of reading the market. When you're confident that they are all showing you a single prediction then it's time to place the trade.

Below is a list of some common methods of analyzing the market:

Simple Moving Average (lags the market)
Bollinger Bands (lags the market)
Elliot Waves (predictive when present)
Fibonacci Retracement (predictive)

Remember an indicator that lags the market cannot be wrong, but a predictive one can.

There is also a fair amount of material written on understanding the Candlestick patterns and sequences.

Whilst they may be common, it's entirely possible to make money from forex without using any of those techniques. Maybe "uncommon" techniques are better than the common ones you read about in all those eBooks, forums and blogs? Many of my own systems use no indicators at all, in the conventional sense of the word. At the moment out of those four I only use an SMA occasionally. I do have candlesticks on my charts too, but that's about as far as it goes.

I do agree that patiently waiting for exactly the right setup to come along is an essential part of the majority of profitable systems. Working out how to filter out the less than perfect setups is undoubtedly worth the effort.

How much should I trade?
My answer to this is as little as possible, a single unit of whatever your account will allow. For some this may be 1, 10, 100, 10,000 or 100,000.

My answer to this is the amount that your system indicates you should trade.

That said I absolutely agree. Start on a demo account. When you've worked out how to make consistent profits on that, move up to a micro account. When you've worked out how to make consistent profits trading one micro-lot add some money management to your system.

When should I get out of a trade?

Again this comes with experience of reading and understanding the charts, Resistance and Support levels and any data releases that have happened or are about to be released.

Most investors fail or lose money (me included) by holding on to losing trades too long and taking profit too soon.

A basic rule is to use a risk to profit ratio of 1:1 or 1:2

My answer to this is when your system indicates you should exit. (Are you beginning to get the idea now?)

The concept of support and resistance frequently finds its way into my systems somewhere, and data releases are usually best avoided by beginners.

I made a profit or took a loss. What now?

Understand your trade and what made it a success or not.

Absolutely. Try and learn from every trade. Try and write each and every trade down in a log, or type the details into a spreadsheet. Reason for entering, reason for exiting, analysis if possible. Note that this bit becomes very much easier when you're following a well defined system. Make sure to write in your log in big bold letters if you fail to follow your system!

So there you have it. Well defined trading systems are the only way to travel, for me at least.

Cheers,

Jim