I notice a lot of newbies don't know where to begin when coming up with a method that suits them. These are the steps I have used to find a method that works for me; I hope you can use them to your advantage.
1) Decide a time frame to use. Keep in mind that longer time frames are generally less prone to whipsaws and larger stops are generally required. Do you want to be at your computer all day? Then trade short term. If not, trade long term(4hr charts, Daily, Weekly)
2) Read everything you can about all the indicators your charting software offers. Know what typically entails a reversal, trending period, and ranging period for each indicator if applicable. Some indicators I would suggest looking into are: Bollinger Bands, RSI, ATR, ADX, Stochastics, MACD, and CCI. Please don't feel limited to this list. Also, I wouldn't consider them indicators unless you use their cross as an entry, but Moving Averages are good to know about. At least know what they show: i.e. MA slope is up = Trend is up; vice versa.
3) LOOK at your graph with each indicator one at a time. See what the indicator does when the trend is up, ranging, and down. Start to develop rules in your mind about how this indicator could work for you. If one of your supposed rules fails later on, look into it, and see WHY it fails. Does one of your other indicators compensate for your loss? PLEASE NOTE: There is such a thing as TOO many indicators. In my opinion, 5-7 indicators should be a limit. Personally, I only use 2, and sometimes fibonacci lines.
4) Study up on price action analysis. This entails reading about candlestick formations, Fibonacci lines, supports and resistances, and trendlines. One of my favorite books in forex is Steve Nison's Japanese Candlestick Charting Techniques, which is well worth the money and gives you tons of insight on candlesticks.
5) BACKTEST your method when you come up with it. I'm talking about DETAILED excel spread sheets. These will be an invaluable reference to you as not only historical data, but confidence boosters. Analyze your data: Win/Loss percent, average loss, average win, total profit, average risk.
6) THIS POINT IS LAST, BUT CERTAINLY NOT LEAST Money management. Suppose extremely lucky person A and run of the mill person B engage in a friendly trading competition. Person A risks 80% of his account per trade, and is seeing some awesome results. In fact at the end of the month, Person A has nearly quadrupled his money. Person B on the other hand risks only 3% of his account per trade, but he manages to increase his account by 15% at the end of the month. The next month rolls around and Person A isn't so lucky anymore. He has lost only 4 trades, and his account has been crippled to even less than what he started with. Person B also, lost 4 times, too, but he's only down 12% this month and 3% total. I think you get the idea. Please read everything you can about money management, but I will tell you right now, conservative is generally better.
All of these things WILL TAKE TIME. Forex is considered by many to be a business, and as such, it should be treated as a business. This is your education to succeed in the business of Forex, so learn about everything you possibly can, and I can promise you that one day, it will all just click, and the pips will be rolling in.
Also, please note that there are other types of strategies besides those listed above including break-out strategies, and all sorts of other fun stuff. This forum is a great resource for looking at different trading styles. Find one that is right for you and run with it.
Best of luck,
Kevin
1) Decide a time frame to use. Keep in mind that longer time frames are generally less prone to whipsaws and larger stops are generally required. Do you want to be at your computer all day? Then trade short term. If not, trade long term(4hr charts, Daily, Weekly)
2) Read everything you can about all the indicators your charting software offers. Know what typically entails a reversal, trending period, and ranging period for each indicator if applicable. Some indicators I would suggest looking into are: Bollinger Bands, RSI, ATR, ADX, Stochastics, MACD, and CCI. Please don't feel limited to this list. Also, I wouldn't consider them indicators unless you use their cross as an entry, but Moving Averages are good to know about. At least know what they show: i.e. MA slope is up = Trend is up; vice versa.
3) LOOK at your graph with each indicator one at a time. See what the indicator does when the trend is up, ranging, and down. Start to develop rules in your mind about how this indicator could work for you. If one of your supposed rules fails later on, look into it, and see WHY it fails. Does one of your other indicators compensate for your loss? PLEASE NOTE: There is such a thing as TOO many indicators. In my opinion, 5-7 indicators should be a limit. Personally, I only use 2, and sometimes fibonacci lines.
4) Study up on price action analysis. This entails reading about candlestick formations, Fibonacci lines, supports and resistances, and trendlines. One of my favorite books in forex is Steve Nison's Japanese Candlestick Charting Techniques, which is well worth the money and gives you tons of insight on candlesticks.
5) BACKTEST your method when you come up with it. I'm talking about DETAILED excel spread sheets. These will be an invaluable reference to you as not only historical data, but confidence boosters. Analyze your data: Win/Loss percent, average loss, average win, total profit, average risk.
6) THIS POINT IS LAST, BUT CERTAINLY NOT LEAST Money management. Suppose extremely lucky person A and run of the mill person B engage in a friendly trading competition. Person A risks 80% of his account per trade, and is seeing some awesome results. In fact at the end of the month, Person A has nearly quadrupled his money. Person B on the other hand risks only 3% of his account per trade, but he manages to increase his account by 15% at the end of the month. The next month rolls around and Person A isn't so lucky anymore. He has lost only 4 trades, and his account has been crippled to even less than what he started with. Person B also, lost 4 times, too, but he's only down 12% this month and 3% total. I think you get the idea. Please read everything you can about money management, but I will tell you right now, conservative is generally better.
All of these things WILL TAKE TIME. Forex is considered by many to be a business, and as such, it should be treated as a business. This is your education to succeed in the business of Forex, so learn about everything you possibly can, and I can promise you that one day, it will all just click, and the pips will be rolling in.
Also, please note that there are other types of strategies besides those listed above including break-out strategies, and all sorts of other fun stuff. This forum is a great resource for looking at different trading styles. Find one that is right for you and run with it.
Best of luck,
Kevin
Kevin
