We’re all introduced to currency trading charts as soon as we decide to enter the currency trading market. They’re rather strange at first, but then we quickly figure it all out. Most are in the modern format of candlestick charts so we can see at a glance what has been happening to the price, not only as to whether it has been going up or coming down, but also, to a certain extent, the volatility it has displayed on the journey.
Most platforms now boast a large array of "indicators". These are tools that you can employ on your chart that give various indications of what has been happening and from which you can decide what the future of the chart will probably look like. The indicator most often used is the Simple Moving Average (SMA), but you also have Bollinger Bands, stochastics, Relative Strength Index and fibonacci, and over a dozen or so other indicators if you look for them.
This isn’t the place to explain them all. The Help section of your trading platform will probably explain what they do, or you can enter each name in your favorite search engine. But what is more important is which ones can help you make successful trading decisions.
There is just one indicator that most successful traders use in conjunction with the chart itself, and that is the SMA. If you are following a daily chart then you might have the SMA set to periods of, say, nine days and 50 days. This can tell you if the time is right to enter a trade, and, remember, often one of the most correct trading decisions is not to trade.
If the nine day SMA has crossed the 50 day SMA going upwards, and the current price is above that and going upwards, then it may well be a good time to buy. This is just an example, but that is how following the SMA and experimenting until you find a successful combination of periods can work.
What about the chart itself? Can it give you any more information than that the price is moving upwards or downwards, or staying much the same? Yes, it can. One of the secrets to success in currency trading is knowing where to set your stop loss and your limit order levels. If you set the stop loss level too tight you risk being stopped out if the price suddenly spikes or dips before resuming its course, and if you set it too wide then you are risking a lot of money on one trade where you may only stand to make a modest profit.
So this is one method of giving yourself the maximum chance of success in any trade. Study the chart carefully. If, say, the price has been coming down for a while and you’re satisfied a trend has been established, calculate the minimum number of points is likely to come down further in the next day or two. If you can make a reasonable profit by taking just a half to two thirds of that number of points then consider entering the trade.
The next question is where to place your stop loss level. Refer again to your chart and work out the maximum volatility, i.e. the largest reversal the price has shown over the last two or three days. If it is no more than, say, 30 points, then, if you can afford the risk (and only if), you can set it for 35 or 40 points, and be as sure as it’s possible to be in the currency markets that you won’t be stopped out before you make your target profit.
Try it on a demo account first. You may wish to take this method further as a result of your own observations.
Philip Gegan is a retired UK lawyer who has studied the financial markets since 1991. You too can make profits such as 70% in less than a week on gold at http://www.onlinefinancialtrading.com
Article Source: http://www.articledashboard.com/Article/Using-Your-Currency-Trading-Charts-To-Maximise-Your-Success-Rate/924560
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