Steps to Success in Forex
Support and resistance levels are very important to identify and use correctly. These levels are used not only to determine entry and exit prices but also in setting stop-loss and limit orders. Many trend reversals occur directly after a bounce off a major support or resistance price level. Properly identifying these price levels will help you to understand why a currency is changing trends. Many beginning traders ask why the currency changes trend just as they enter into it. Well, these support and resistance levels are a huge factor for these trend reversals.


A proper entry into a position is one of the most important parts of trading any market. By being able to use several charts and indicators, you will make better decisions for profitable trades. It is important to have indicators that show the same trends and to avoid entering a position where indicators show mixed signals. Look for a strong confirmation by a couple of indicators before you enter a position. As you look at long- or short-term trends, check the indicators such as the moving average convergence and divergence (MAC/D), the relative strength indicator (RSI), and the stochastic indicator for possible overbought or oversold signals. Even though the currency pair is strong one way or another and there may not be a support or resistance price level in the near future, the pair may be in an overbought or oversold condition, making a reversal a distinct possibility.


While the market moves in trends, it has its small retracement trends. To maximize your potential profits, you should enter or add to your positions at dip bottoms or rally tops (see Figures 12-1 and 12-2). This will allow you to enter stop limits for a true trend reversal and avoid getting stopped out by a retracement. Resistance and support levels will help you with determining the retracements and possible entry points.
The use of Fibonacci retracement tools will help you in calculating a buy or sell price and in determining the currency pair’s retracement potential. I strongly advise you to look at the currency pair’s trend history to determine what the retracement percentage usually is.


The use of money management is the last step on your road to success—but perhaps the most important. Proper money management minimizes capital loss and maximizes profits. I cannot stress enough that the proper use of money management will be the ultimate tool and key in your success in the FOREX. As I mentioned earlier, trading with sufficient capital is very important. This will allow you to stay in positions as they develop and not force you to take quick profits and losses. Be patient. Employ risk-to-reward ratios that will allow you to be profitable in the long run, even if you have several positions that did not have a profitable outcome. Follow the same rules each and every time, and accept your losses. Trading in the FOREX or any other market with money you cannot afford to lose is never a wise idea. It will make you a nervous trader, and emotions will start running your trades. Last but not least, always use stop limits!