Introduction to Simple System FOREX Trading

You now have mastered the mechanics of your trading platform and have set up a preliminary process for pre-trade, trade, and post-trade. I say preliminary because as you develop your trading method, all setups will need to be modified in accordance with what is specifically needed for it. You have selected one or two brokers and a trading platform to demo. You are ready to begin trading the demo account using a simple indicator battery method. This will get your feet wet and also aid in understanding how trading methods are developed.

Tip: Performance is not an issue here; learning is the focus.

Fundamentals almost certainly drive the long-term trends of currencies, but trading is a short-term affair.
Most traders do not even hold a position from one eight-hour session to another. "If U.S. interest rates go up, then the USD will rise" -- this is true in some cases, false in others. There are so many other factors determining currency prices that an accurate observation one time may be incorrect the next. Correlations, between them, almost certainly nonlinear, come and go without notice. But even if one knew a statement to be correct, how does that help a trader in the short term? Leverage is the name of the game, and few of us want a $10,000 loss while waiting for a fundamental factor to work.

Ergo, I strongly recommend the new trader develop a simple technical analysis toolbox to get started trading currencies. You may add to the toolbox later or make adjustments. Or perhaps you will find your approach in the Goodman Method of Part 5 -- or in any number of other technical trading approaches. Use the techniques of News Trading. as your fundamental analysis adjunct.

At the outset, it is important to keep your tools balanced, and your method simple. Do not select four tools effective in trading markets and only one that works in trending markets. This implies that you know what an indicator, charting technique, or other technical tool really does. Begin your FOREX career by keeping it simple.

Of the three components to trading, trading techniques get the most publicity -- perhaps because they are easier to communicate. Traders have hundreds of tools to trade, even though most are variations of a few general types. The composition of toolboxes and trading methods also varies enormously from trader to trader. But almost all successful traders share the same psychological attributes and basic money-management rules.

By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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