Which way the price is heading? How far will it travel? How long will the trend last? Where is the bottom, top and what are the signs of a weakening trend?
These and many other questions form an essential part of any technical analysis.
1. Embrace the full picture of the market
Before turning your attention to a small time frame, sit back and look at a series of superior time frames: daily, weekly, monthly. Even if you're not going to use them in your intra-day trading, you must be aware of the global tendencies in the market.
Imagine that you're standing close to the highway trying to figure out in which direction most of the cars are heading. Then imagine that you're looking at the same highway from the high hill - you'll be able to see much more, and the answer will be laying in front of you.
2. Find the trend and follow it
Trends can be long-term (yearly, monthly), intermediate (weekly, daily) or short-term (hourly, 30 min, 5 min etc).
At any time, you should be able to work with at least 2 time frames. The longer frame will be used for finding trends, while the lower - for timing entries and exits.
Trading with a trend is always easier than trading against it. Professional traders would never attempt counter-trend trading without a good reason, most of the time, however, they will trade with a trend. For the rest of traders following a trend is undeniably the best & safest option.
3. Find Support and Resistance in the market
The best place to Buy the market is near support levels.
Instead of trying to catch the rallying market, wait till it retraces to test the nearest support. Buying such dips is the best way to minimize risks and get the most of each market move.
4. Draw trend lines
The easiest and most effective way to work with support/resistance levels is by drawing trend lines.
Trend lines don't have to be always inclined, they can also be horisontal or flat - such trend lines are drawn through most distinctive and visible price tops and bottoms, creating horisontal levels of support and resistance.
5. Use daily High/Low
Make a habit to draw lines through Daily High and Daily Low every day.
6. Use indicators
While the price is the best "indicator", trading without any indicators is challenging.
Using indicators requires knowledge. The more indicators you try, the more experience you gain. There are numerous indicators that look different, but use identical formulas, thus producing 100% identical signals. You don't want to have 2 indicators that will duplicate each other.
7. Keep your charts clean
Don't make the mess out of your charts by placing too many indicators on the screen. The more indicators you have - the more difficult it becomes to read charts, and, moreover, you'll be struggling with making trading decisions, as too many indicators will inevitably lead to contradicting buy/sell signals.
8. Create a trading plan
Consistency in trading is achieved through a well planned execution. If you don't have a trading system, it's time to create one. Keep the rules simple, avoid the mess, and make sure that there is a logical explanation to everything you've planned.
9. Money management is everything
"Risks" is the #1 word in the investment world. We take risks every time we make trading decisions.
When trading, the goal is to be prepared for every occasion. "Hoping" never works in the currency world. Market forecasts can offer some insight, but will never guarantee even the slightest accuracy! Only the real facts that happen here and now matter. Therefore traders should:
Protecting your trading account from major losses is the #1 goal in trading.
If you find yourself in a situation, where you've made a huge mistake and your trade is in deep-deep trouble, close that trade as soon as you can. It might be your last chance to escape a total fiasco! Hoping is naive and useless! When the ship starts to sink, don’t pray - jump!
10. Know yourself
If you don't know yourself well, Forex is an expensive place to learn that.
Besides, know when you're tired or stressed, and whether this will have any effect on your ability to make trading decisions.
11. Know the markets
Bull markets - up trends - take long time to build, while bear markets - down trends - develop very quickly.
Traders say about the speed difference next: "While bulls climb up the stairs, bears jump out of the window".
12. Study. Share. Improve.
Never stop studying.
Share your knowledge with others.
Your trading will improve as the result of the above!