Published On: Sun, Jan 20th, 2013

Perfecting your forex skills using technical analysis

Swing traders are defined as those who utilize short-term price momentum to locate new Forex trading opportunities. They then have a tendency to maintain their new Forex positions open for extended periods which could be as long as couple of days to weeks. Fundamentally, they will try to trade those currency pairs that fluctuate between overbought and oversold conditions on a weekly or monthly basis. Forex experts recommend that you will obtain optimum results utilizing this trading strategy when price is not following a trend but is moving horizontally.

You can construct a Forex trading strategy quite readily that is based on the concepts of swing trading. This is because this trading method provides you with techniques that you can use to identify quality trading opportunities.  You can achieve this goal by detecting crossovers produced by technical indicators that have been designed specifically for this task. For example, the Relative Strength Index and the Stochastic Oscillator are prime choices.

However, you will discover that many traders are still not able to comply with the recommendations of their strategy despite their many benefits. Why should this be so? For instance, if you analyze the trading charts of selected currency pairs then you will be able to identify well-structured market tops and bottoms. Consequently, you should be able to utilize the concepts of swing trading to produce good profits by trading these patterns.

However, you will find that statistics and reality do not paint such a rosy picture. This is because the main problem that you will encounter when swing trading is identifying the optimum levels at which to open new Forex positions. You will also have to enhance your trading psychology so that you can handle the negative emotions that are created by short-term price retracements. You can counter such problems by obtaining confidence and trust in your trading strategy and concentrating on your long-term objectives.

In general, many Forex experts recommend that you need to develop a Forex trading strategy as your best method for controlling your emotions and gut instincts.  Consequently, you should then be able to consistently adhere to your strategy which comprises a well-tested set of rules. By doing so you will then be able to trade in a more professional and scientific manner.

As such, you will be more in control and not just respond to every new trading difficulty in an ad hoc fashion. You will discover that one of the biggest obstacles between you and Forex success is learning how to prevent your own emotions from influencing your trades.  As such, you will also have to enhance your trading psychology so that you can generate consistent and high quality trading decisions.

Essentially, you must instigate well-proven techniques so that you will not add to the sad statistic stating that about 98% of all Forex novices lose their entire initial funds within a few months of startup. You will, no doubt, experience some degree of anxiety when you commence your Forex career because on the one hand you will dread failure whilst on the other you will carve success.

To that end, you must understand rapidly that Forex is an unforgiving and ruthless opponent. Consequently, you will have to utilize significant amounts of emotional stability and self-control in order to secure sizeable profits. After you have designed a Forex trading strategy, it should exhibit the following attributes:

Win-to-Loss Ratio

  • Expectancy Value
  • Technical indicators
  • Entry and Exit Strategy
  • Time Frame
  • Currency Pair
  • Money Management Strategy

You must then use your strategy as your primary tool to evaluate and execute your trading decisions. For instance, you must only open new trading positions when your strategy advises you to do so. Although these tasks can be readily implemented, you will discover that your instincts can chaotically influence your trading if you do not know how to control them properly. For instance, as forex novices do not accept their losses well, the resultant stress often causes them to endure even larger drawdowns.

By designing and testing a Forex strategy, such as swing trading, and advancing your trading psychology, you will then be in a prime position to perfect and master your trading skills.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.