In the last 5 to 10 years, the forex market has become popular but only 10% of traders have managed to achieve consistent profits. This is because forex traders have chosen not to implement price behaviour into their research. Technical indicators are a part of forex trading systems. This is because they allow the trader to see different facets of price. Technical indicators consist of data points marked on a chart. These marks are from a formula used on the prices of currency pair.
When trading decisions based only on technical indicators are done, they don't tend to give correct results. An example of this is, say there is a MA crossover, which creates a long signal. This happens just as the market reaches a resistance level. There is no reason to take the signal if the price then bounces back of the resistance level. This shows that the market does not want to go up. As well as that, regardless of the MA crossover, the market will continue to fall down. This does not mean that technical indicators are not necessary though, they are an important part of trading. It is recommended, that the combination of technical indicators and pure price action should be used when deciding to trade or not. This will create a higher chance for profit.
Because price behaviour influences how an indicator will act, it should be taken into consideration when it comes to making decisions. Price action is what most results from technical indicators are based around. An example of this is, if the price has gone up enough to make the short period MA crossover the long period MA it creates a long signal. Most beginner traders see this as the MA crossover making the price go up. However, this is not true, when it comes to price action it is the opposite way around, the MA crossover signal happened because the price went up. This is why traders should be aware of price behaviour.
There are two ways in which to create a trading system that is full-proof. Each trader has different wants and needs, which is why there isn't one system that can fit all the traders out there. Thus the trader should create a trading system that suits them best. As well as that, by researching about various trading styles and technical indicators it allows the trader to find a system that suits them best. It is also recommended that from each of the technical indicators chosen, the trader should know exactly how they each work and when to use it in their analysis.
Lastly, the trading system has to have price action included in it. Thus, the trader will only take short signals if the price behaviour tells them the market wants to go down, and long signals if the market wants to go up. After the trader has created their trading system the most crucial part to achieving their full-proof trading system is to follow it rigorously. However, before applying the system into a regular forex account, the trader should test it out with a demo account, where no real money will be lost or gain. Once comfortable the trader can move on to a mini forex account. A mini forex account allows the trader to participate in the market but only with a maximum capital of $15,000. Finally, once being consistently profitable, the trader can create a regular account and use their trading system there
By following the guidelines above, the creation of a full-proof forex trading system, higher rates of return is possible.
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