Here are some of the key and critical components in creating profitable Forex Trading Systems.
There are many ways to trade the Forex markets, but one thing they have in common is they usually focus on the trends, have small losses, and seek out big Forex moves. You should only take trades where your risk when wrong is much smaller than how much you're likely to make. You're winning trades should be 1.5 to 2x bigger than how much risking and you can use Support and Resistance levels in setting likely profit targets.
Finding the longer-term trend is quite easy. You can look at the daily chart, and if it slopes from lower left to upper right then and there is up trend. If the chart slopes from the top left to bottom right, then you have a downtrend.
Once the longer-term trend is identified, you want to trade in that direction today, if the currency passes certain filters. Filters I use are the hundred 180 minute balance point line, this tells me what the average price is over the last three hours and above that I look to buy and below it I look to sell. I also use the hourly charts 20 period simple moving average. Above this moving average I focus on buys and below it I focus on sells. These filters AVOID a lot of bad trades and improve your winning percentage.
If the longer-term trend matches today's trend, and the price is above the balance point line and the hourly moving average, I wait for a countertrend move down, draw a trendline over the highs of those bars, and when price breaks out up through the trendline I immediately buy. My risk is small as I put my stop right under the swing low by a few pips. If the daily trend is down, and the price is underneath the balance point line, and under the hourly moving average, I wait for a countertrend up move to stall, draw my trendline underneath the lows of the bars and when price breaks down through the trendline I sell. I put stop loss right above the swing high.
There are many ways to exit these trades when they move your way. You can use a chandelier trailing stop, use profit targets based on support and resistance, and their many other exit techniques including Fibonacci profit targets.
The real secret to this simple forex trading system as well as my more advanced systems is when wrong I lose a very tiny amount, and went right the profits are often 2-10x more than I risked. Also when trading with trend is quite easy to be right more than 50% of the time.
