The consistently profitable forex trader is an expert. Just as an expert farmer understands seeds and soil, and the expert mechanic can hear the difference between a blown gasket and loose muffler, the expert forex trader knows markets by utilizinf forex trading systems that works. Where does this expertise come from? How does the novice forex trader become an expert? The answer is simple. Perhaps the answer is much simpler that you would believe. You must practice. Practice your craft. Practice your trading. This is the simple way to become an expert. Simple does not mean easy, because many traders expect to become experts without practice, and sadly they never achieve expertise. Consistently profitable forex trading is yours if you practice trading and become an expert. Practice means confidence. Practicing your trading system will enable you to keep trading your system, and avoid all distractions and excuses(e.g., terrible-system traders and bad-market traders) along the way.
Practicing your forex trading system will allow you to enjoy the confidence of knowing when you place a trade how likely you are to be successful with that particular trade.
Your back-testing for profitable forex trading system that works will allow you to do three things:
First, you will identify how suitable the trading system is for you. This does not mean you are discovering whether the trading system is profitable, but, rather, you are examining the fit between you, the trader, and the rules of your trading system.
Second, you will learn to trust your trading system and learn to let go of your trades. You may trade in a more relaxed manner once you have taken thousands of trades over years of market data. The confidence gained by trading your system repeatedly will show up in the form of a relaxed approach to your live trading.
Third, you will gain expertise with your trading system. This may only happen if you take many trades, and back-testing is a quick way to accumulate many trades.
FIVE TIPS FOR FINDING ZONES (SUPPORT AND RESISTANCE)
First, you may not know where to find your support and resistance zones. If you are having difficulty identifying the zones on your chart, the easiest solution is to simply load a line chart. The line chart will show all the zones, because the zones will be identified by the bends in the line At each spot where you see repeat bends in the line, you are probably looking at a zone. Second, you may have too many zones drawn on your chart If you have too many zones drawn your chart, then you will probably experience two likely problems. The first problem is that you will notice many trade opportunities. If you are trading the daily chart and notice that you have a trade nearly every day, you probably have too many zones drawn on your chart. The zones should be more or less evenly spread out, and it may take some time for the market to reach these zones, and trigger a trade. Patience is important for the naked trader. Zones are critical areas on the chart, and price does not always reach these critical areas—zones—every day.
The second problem that you will likely have is that you will notice many trades end up being losers. This is because the zones on your chart are not solid zones; perhaps there are minor zones identified on your chart. It is important for you to draw critical zones only, those spots in the chart where price has repeatedly reversed. By only identifying those zones on the chart where price has repeatedly reversed, the odds are in your favor. It is nearly always better to err on the side of caution. To do this, simply draw fewer zones. If you mark only those zones on your chart where price has repeatedly reversed, you will avoid identifying the minor zones. You may miss out on some trades, but the trades you do make should be great opportunities.
The third common problem you may incur when dealing with zones is this: It often becomes very difficult to determine precisely where a zone should be drawn. This is the nature of the zone. The zone is squishy, it is fat, it identifies an area on the chart, and not a specific . Remember that you do have some leeway in drawing your zone. It is not essential to nail down the zone to a specific price point on your chart, but rather it is important that you identify the area on the chart where you will look for a reversal. The touches on the zone will not be perfect. Some touches will come close to the zone, other touches will extend deep into the zone.
This is USD/CHF daily line chart. The dotted line happens to be both a support and a resistance zone.
The fourth problem that many traders come up against when drawing zones is that the market seems to disregard zones. When this occurs, our trusty friend the line chart can often come to the rescue. The easiest way to illustrate this issue is to take a look at an example. Take a look at this chart in Figure below and you will notice that it appears as though the market is not respecting the area at 81.83, where a zone could be drawn on the chart. However, the same chart viewed as a line chart shows the important touches as bends in the line chart, and it is obvious that the market has respected this zone.
The one-hour AUD/JPY chart has several clean reversals around the zone; however, there are several sloppy touches marked with arrows. The market does not appear to respect the zone during these touches. The line chart clears up the confusing price action around the zone on the AUD/JPY one-hour chart. The line chart indicates that the market found resistance twice and support once.
The fifth problem that you may come up against when trading with zones is this: If the market trades beyond the zone it does not mean that the market has broken the zone. This is an important and critical point for the naked trader. Remember zones are beer bellies, they are squishy, they are fat, and they consist of a wide range on the chart. This means that sometimes the market will push into the zone, and it may look like the market has broken beyond the zone, this is often not the case. Have a look at some charts. You will notice how price will often push into and beyond a zone, only to eventually turn around. This is a common behavior. It is also the reason why most naked traders find it much easier to trade reversal set-ups than breakouts. Reversal set-ups are based on the market turning around at a zone, and breakouts are based on the market trading beyond a zone. Perhaps you are similar to most traders in that you find it a very tricky proposition to determine when the market has made a breakout and traded beyond a zone. If this describes your experience, you may consider avoiding breakout trades and focusing on reversal trades. We call the easiest and safest way to trade breakouts The Last-Kiss. If you are interested in breakout trading, the last kiss may be the trade for you. Once you begin to closely attend to the clues in the market, your trading will become more consistent. Once the market reaches a zone, the naked trader watches carefully, and if a catalyst appears, a trade is triggered. The key to successful trading is to wait for the very best trading opportunities. These opportunities occur when the market reaches a well-defined zone and then prints a catalyst. These are golden opportunities. The next section is all about trading catalysts, how to identify them and specific rules for trading each of the high probability, naked-trading set-ups.
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