By James Woolley
It has to be said that many people approach forex trading the wrong way. They believe that the more trades they make, the more money they will make. However this isn’t the case at all. In fact the opposite is true in a lot of cases.
The problem with short-term trading is that it is notoriously difficult to make money. The markets move all over the place during any given day, and with spreads of between 2 and 5 pips, it is almost impossible to continue to generate profits from these short-term price movements. Even if you use technical analysis to help you, you will still find things difficult because you get a lot of false signals.
However if you lengthen your time frames and start to look at the 4 hour or daily charts, for instance, you will find that these random short-term price movements become irrelevant because they are just a very small part of the wider picture. If you now apply some technical indicators to your charts, you will find that they give a lot more reliable signals.
The truth is that you can make just as much profit from one good trade on these longer time frames than you can from the combined total of tens of trades on the intraday time frames. You just need to have enough patience to wait for the very best set-ups.
This is what I did recently with the EUR/USD pair. The long-term trend had recently turned negative and I was simply waiting for a slight pull-back followed by a continuation of this new downward trend. As soon as the EMAs that I use crossed downwards on the 4 hour chart, I entered a short position and banked a very easy 100 points.
The price has since fallen another 200 points, but that’s irrelevant. The point is that it’s better to trade maybe one or two positions a week, like I do with my main 4 hour trading system, than stress yourself out opening and closing lots of different positions all day long.
There is a lot of money to be made from forex trading, but you have to approach it with a sensible head. Very few people can consistently make money day trading the markets, but a lot more people, including myself, are able to make decent profits trading the longer term charts. If you are selective about your trades and wait for the very best set-ups, then you should be very successful.
About the Author
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