Saturday, August 29, 2009
Forex Trading - A Simple, Easy Tip to Increase Your Profits
Forex trading is all about getting the odds in your favor to reduce rsik and increase reward. The simple tip below is ignored by most traders - yet if you include it in your trading plan, will see your risk decrease and profits increase and that’s what all traders want! Most novice traders don’t use this tip and lose. Learn the significance of this tip and use it and it is simply: Trade with Price Momentum Many traders like to predict where prices are going to go – but they should really be trading on the facts and that’s exactly what looking at shifts in price momentum does. It gives you clues to where prices may go next. Lets Loom at a common error that novice traders make to illustrate the point. Many traders love to buy dips to support and many will use trend lines or moving averages. As prices approach the support level, they buy into the support and hope that it holds. This is a huge mistake! If you rely on “hope” you are going to lose. This is why looking at price momentum is so important. If the momentum of price starts to weaken into support and turns the odds of support holding have increased. Acting on the Facts To watch prices come into support and rather than diving in and taking a position - WAIT for price momentum to weaken into support and turn back up away from support. This is the cue to take a position, as price momentum is now moving away from support and odds favour the bulls. Why dont traders fo this more often? Traders find this hard to do, as they don’t like the fact they missed a bit of the move by waiting, but this is the only way to get the odds on your side. Consider this: Support obviously can either hold or break and you don’t know which will occur in advance it’s impossible to predict – you are simply guessing and that’s a good way to lose. If you look at price momentum you will be acting on confirmation that the odds are in your favour. A trader who is patent and disciplined and acts on confirmation has a far better chance of success than one who guesses or predicts where prices may go. So what are good indicators to look at? The best indicator by far in our opinion is the stochastic indicator – we don’t have enough room to cover it in detail here but it’s a great indicator for graphically showing shifts in price momentum. We like to combine the above indicator with the Relative Strength Index(RSI), another great momentum indicator. We never take a trade unless price momentum points the same way as our trade. Forex trading is an odds game and by using momentum indicators you will increase your chances of success and of course your profit potential.