/ 9 basic tips for the forex trader

In this article, you will learn about 9 things that everyone who wants to succeed in Forex trading should know.

1. Market trend charts and price range charts

Use charts with long-term time frames to identify a trend or fluctuation in the market. Start your analysis with daily, weekly, monthly and even multi-year charts. A large scale chart essentially shows the life of the market and gives a much clearer long term perspective of the market situation.

Once you have analyzed the long-term market situation, you can analyze charts with short-term time frames. Remember that the randomness factor in Forex is higher the smaller the time frame of the chart. It is much more difficult to successfully predict price behavior on short-term timeframes. As a rule of thumb, it is better to trade in the same direction as the trends in the medium to long term, even if you are only trading in the short term. Unless there is a strong and definite trend, it is better to move on to other types of strategies.

2. Follow the trend

Once a trend is identified, you should only open positions in the direction of the trend. Market trends can be long term, medium term or short term.

You must first decide whether you want to follow a long-term or short-term strategy. This decision will determine the type of charts you should use. But the strategy will always be to follow the trend.

In case of an uptrend, you will wait for a price regression to buy the pair and provide a good entry price. In case of a downtrend, wait for a price recovery before selling.

3. Support and resistance levels

Find support and resistance levels. It is best to buy near support levels and sell near resistance levels. A resistance level is usually a high point previously reached by the price of a currency pair.

When a resistance level is broken to the upside, it automatically becomes support. Similarly, when a support level breaks down, it in turn becomes a resistance level.

4. Pullbacks or corrections

Generally, when the market corrects, up or down, there is a pullback of the previous trend. Corrections in an existing trend can be measured in simple percentages. The most common is a fifty percent pullback from the previous trend. Fibonacci retracements of 38% and 62% are also two of the most commonly used levels among forex traders, including high volume investors such as banks or financial institutions.

5. Trend Lines

One of the simplest and most effective charting tools is the trend line. This is a straight line connecting two points on the chart:

If the trend is upward, the line is drawn below it, connecting two or more low points.
If the trend is downward, the line is drawn above the chart, connecting two or more higher points.

Prices often follow these trend lines. When a trend line is broken, it often indicates a change in the overall trend of the market.

6. Moving averages

Moving averages often give buy and sell signals, so it is important to be aware of them. They can be used to determine the state of the current trend.

One of the most common ways to use moving averages is to use two different averages on the same chart and wait for them to cross. If, for example, we are in an uptrend and prices are in a correction, the moment the faster moving average (e.g. 10-day) crosses the slower moving average (e.g. 20-day), it is likely to be a good buy signal.

7. Oscillators

Oscillators help us identify overbought or oversold markets. While moving averages provide confirmation of a market trend, oscillators can often tell us the right time to open a trade.

The two most common oscillators are the Relative Strength Index (RSI) and Stochastic. These two oscillators operate on a scale of 0 to 100. When the RSI is above 70, there is an overbought effect and when it is below 30, it indicates oversold. The overbought/oversold values for stochastics are 80 and 20 respectively.

One of the most useful oscillator signals is divergence. Divergence occurs when the direction of the oscillator signal diverges from the direction of price movement. This situation is usually a sign of a change in the market trend.

8. MACD

The Moving Average Convergence/Divergence (MACD) indicator combines a moving average crossover system with overbought/oversold oscillator elements. A buy signal occurs when a faster line crosses a slower line upwards and both are below zero.

Conversely, a sell signal occurs when a faster line crosses a slower line downward, both of which are above zero.

The MACD histogram determines the difference between the two lines and gives an early warning of changes in trend. The histogram uses vertical bars to show the difference between the two lines.

9. ADX

The Average Directional Index (ADX) helps determine whether the market is in a trending phase or fluctuating between ranges. This tool measures the strength of the trend or direction of the market. Generally, a reading above 25 indicates that the market is in a strong trend rather than fluctuating between ranges.