2Bull Forex Blog

If you want to make money with technical analysis and forex charts you can - but you mustn’t make this common error - most forex traders do and it will lose you money - Guaranteed. Let’s look at this error how to avoid it and a better way to make money with forex charts.

The most common error of all is trying to predict forex prices in advance.

You cannot predict!

If you do, you are simply hoping or guessing where prices may go and that won’t make you money in anything let alone forex trading. You need to trade on CONFIRMATION only - let’s look at this in more detail.

A trader will see a price approach a level of support and buy just above it, thinking they are getting in at a good price - but it’s only a good price if the level holds.

All he is doing is guessing what might happen and will lose.

Predicting forex prices is about as accurate as your horoscope so let’s look at how to trade on confirmation.

What you need to do is this:

Wait for prices to approach support and get ready to buy - but don’t execute your trading signal until you see a clear turn in price momentum. When price momentum has turned then you buy.

Sure you miss the exact bottom - but you wouldn’t know that in advance anyway so there is no point in trying to predict. If you trade on Confirmation with momentum you have the odds on your side and that’s the only way to trade and enjoy forex success.

How Do You Check Momentum?

You need some momentum indicators and 2 of the best are the stochastic and Relative Strength Index (RSI) how they work is discussed in our other articles in more detail.

I have seen people predicting prices and they have big profitable track records!

Of course you have but there not real and will always have this disclaimer on them:

“CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown“.

Of course anyone can make money in hindsight but that’s not predicting the future!

You can’t predict forex prices so don’t try - make sure you trade the odds on your forex charts and trade on confirmation - You will find your forex trading strategy will make bigger profits!

If you want to catch the big profits by forex trend following you must incorporate breakout trading in your forex trading strategy. Here we will look at why the concept works and give you a FREE proven system.

What is a breakout?

A breakout is one that penetrates resistance or support to make a new high or low.

Why are they so good to trade?

The fact is that most big trends develop from new market highs or lows and this can be seen on any forex chart.

How do you spot good ones to trade?

Not every breakout of course develops into a trend - so you need to spot valid ones.

A valid breakout normally consists of 3 or more tests in two separate time frames.

The more tests the better and the more time frames and wider they are apart, the more valid the breakout is likely to be.

Why don’t all traders make money with them?

Most traders don’t bother with breakouts because they want to wait for the pullback.

They think they have missed part of the move and want to wait for a “better price” - on valid breakouts, prices don’t come back and the trader misses the move.

Other traders buy breakouts without confirming price momentum - but you must confirm them!

How do you confirm momentum?

Simple - just look at some momentum oscillators (we don’t have time to discuss them here in detail simply check our other articles) and if they support the breakout go with it.

When you do your stop it’s obvious - just below the breakout point.

Despite the fact that breakouts work, most traders simply can’t buy new highs and lows - but if you do you can make some great profits.

You need to be patient though - good breakouts don’t come around every day and you also need to confirm the move.

If you do the above, you can make money with breakout trading, sure its simple but don’t be deceived - many of the world’s top forex trading systems are based on breakout methodology.

A Simple Breakout System

Here we will give you a free breakout system which you can use right now.

It was developed by trading legend Richard Donchian back in the 70s to trade commodities but it works great on currencies here it is:

Close short positions and reverse to a long position when a price exceeds the highs of the previous 4 weeks - reverse long positions and take a short position when a price falls below the lows of the previous 4 weeks.

Well you can’t get simpler than that!

Test it and you will see it works as forex markets trend well.

The downside is of course when markets trend sideways the system will get chopped and incur losses. To cut drawdown You can alter the rule to:

Enter trades on the 4 week rule - but exit the position on a shorter time period and go flat. 1 or 2 week cycles are commonly used; you then look to re enter on the next 4 week signal.

The beauty of the above as a currency trading system is its simplicity, making it very robust and profitable.

Also consider this it’s been used by Richard Dennis and many other trading legends so look at it!

If you want to make bigger profits from forex trend following, you need to incorporate breakouts in your forex trading strategy. You can use a non mechanical one based on the above guidelines above - or you can use a simple but powerful mechanical system like Richard Donchian’s 4 week rule.

Make breakouts part of your forex education and you will enjoy bigger profits from forex trend following.

It is often said that a trader’s psychology is the most important aspect of profitable trading. ‘Patience’, ‘discipline’ and ‘having a system’ are just some of the most commonly touted characteristics of great traders.

But while most traders are aware of these traits, many fail develop them. Why? Is it really that difficult to just sit there and have the patience to wait for a favourable trade setup? Is it hard to avoid entering into unnecessary, low probability trades?

I think the answer is no, it’s really not that difficult at all… but only if your aim is to make money.

Unfortunately, many people don’t trade to make money.

“What Are You Talking About?”

Yes, you heard me right. I don’t think many people trade to make money at all. They THINK they’re trading to make money. But in actuality, they’re just looking for excitement in the market. They’re searching for entertainment.

You see, a majority of the traders in the market are bored with their lives. They wake up in the same bed, drive the same car to work, sit in the same office and push the same papers around. Then they go home in the evening, change into the same t-shirt and shorts, eat the same microwave dinners, and watch the same TV shows before going to sleep… only to wake up to the exact same day tomorrow.

They’re bored with their lives. They’re bored with the same old clockwork routine day after day after day.

Suddenly, the exciting world of Forex trading is made known to them, and they embrace it like a child in an amusement park. As humans, we all need a little emotional stimulation. Unfortunately, this craving for stimulation often turns into an addiction in the Forex market. People get addicted to the dizzying highs of a winning trade; and also to the feelings of loss and anger in a losing one. Of course, it doesn’t really matter to them if they win or lose; they’re only there for the excitement. They just won’t admit it, that’s all. But once you’re in the market for excitement, you’re finished.

You must understand that trading to make money is boring

That’s the best way I can put it. Truly, making money in the Forex market is a boring job.

If you’re looking for excitement, get a Playstation or Nintendo Wii. Maybe go down to Vegas for a quick, sinful gambling splurge if you’d like.

But don’t confuse excitement with profitability in the market. It’s not worth it.