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As a trader for over 25 years I have tried lots of ways to make money and learned forex trading the hard way. Here I am going to look at the basics of building a currency system in simple steps and show you how to get one that not only works but suits your trading temperament and lead you to currency trading success.

The first point you need to consider before devising a currency trading system is what type of trader are you – Do you have lots of patience or do you like a bit more action?

You essentially have two choices, swing trading or long term trend following.

A common error made by most new forex traders is they are tempted by forex day trading but it doesn’t work. The biggest myth of forex trading is that day trading makes money, yet of all the systems sold on the net you will never find one with a real time track record of profits.

The fact is all short term volatility is random and you can never get the odds on your side, so it’s doomed to failure.

Let’s look at the benefits of swing trading:

You are trading moves of about 3 to 5 days, you get plenty of action, get profits and losses quickly and don’t have to have the patience of a long term trend follower.

Long term trend following is hard mentally however it’s potentially the most rewarding in terms of cash, but you have the mental turmoil of seeing open equity dip – if you can overcome the mental hurdle you can make excellent gains.

The two basics of any currency trading system are:

You need to be able to spot support and resistance and then you need to enter trading signals in line with market momentum.

Many traders simply hope levels of resistance and support hold or break, however if you want to learn forex trading, you must learn to confirm each and every trading signal before entering.

We will look at the best indicators to use in the next article but what we want to concentrate on now is the most essential part of forex education that traders fail to learn – money management.

This is much more than learning to place a stop – that’s easy. The hard bit ( particularly when trend following) is moving the stop and how to maximize your gains.

If you are trading using support and resistance the stop obviously goes behind the level the opposite way to the way you’re trading. The problem is:

How to follow trends and get out with large profits?

Most traders simply cannot accept a large profit.

They get so excited when they get a profit they move their stop to quickly to protect what they have and then get stopped out by normal volatility. They then get frustrated when they see the trade pile up $10,000 or more in profits and their not in!

If you want to long term trend follow your stop needs to lag a long way behind and you need to have confidence your target will be met. Either exit on a target or accept you will give back a lot of the gain – this doesn’t mean to say you wont make money you will but you will of course miss some.

It’s frustrating but that’s forex trading

With swing trading you should never use a trailing stop always use a target and bank just before the next level of resistance or support.

In the next part of the article we will look at the best indicators to use and how to apply them for profit.

If you ready to learn Forex trading, it is important to learn which style of trading most closely matches your investment style. Learning how to trade Forex requires different strategies and trading techniques than traditional stock markets. There are two primary styles that traders use to trade Forex; fundamental and technical analysis. Consider which style represents your style, as this is the first step to take as you learn forex trading.

Fundamental Analysis

Fundamental analysis involves basing the valuation of currency on economic reports and other important economic indicators. Traders who utilize this technique review a country’s gross domestic products, interest rates, news releases about the nation’s economy and unemployment rates to determine how to trade various currencies. When you learn Forex trading based on fundamental analysis, you will want to select a firm that provides ongoing, accurate and easy to access research on these important fundamental indicators.

Technical Analysis

When a Forex trader utilizes a specific system to execute trades, it is referred to as technical analysis. As you learn forex trading, you will begin to develop your own indicators, your own trading style and your own reporting system. Most traders who utilize technical analysis for their trading decisions will leverage a Forex software system. While a trader could work on a manual system, a software program will offer a more cohesive method for tracking and organizing crucial trading data. As you learn Forex trading, be sure to inquire into research and tips from the firm you are placing trades through.

As a trader begins to learn Forex trading, they are often attracted to technical analysis as trends are easy to find, charting is made simple through a software program and patterns are more easily noticed than with the fundamental analysis approach.

Both trading techniques offer advantages and disadvantages that will appear to a variety of investors.

The Forex trading market is an around-the-clock cash market where the currencies of nations are bought and sold, typically via brokers. Forex prices can change at any moment in response to real-time events, such as political unrest or the rate of inflation. Currency market players typically use “Forex analysis” as a means of predicting currency price movements. Forex analysis is divided into two types: fundamental and technical. A fundamental analysis uses economic and political factors as a means of predicting currency movements. A technical analysis uses reliable historical data as a means of forecasting these movements. The purpose of this article is to discuss the basics of fundamental and technical analysis.

A fundamental analysis uses economic and political factors, such as housing starts, the unemployment rate, or inflation, as a means of predicting currency movements. Fundamental analysis is concerned with the reasons for currency movements. Many Forex traders who rely on fundamental analysis plan their trading strategies around a number of U.S. Government economic indicators. Some of these indicators are the Consumer Confidence Index (CCI), the Consumer Price Index (CPI), the Employment Situation Report, the Gross Domestic Product (GDP), the Composite Index of Leading Indicators, the Advance Report on Durable Goods, Housing Starts, and Initial Jobless Claims.

All of these Federal economic indicators have a marked effect on the Forex trading market. Some of these indicators are released weekly, while others are released monthly or quarterly. Their sources include the Federal Reserve, the U.S. Bureau of Labor Statistics, the U.S. Bureau of Economic Analysis (BEA), and the U.S. Census Bureau.

Forex traders must take other economic indicators into consideration as well. The world’s leading economies (for example, the United Kingdom, Japan, France, and Germany) also release their own economic indicators that will have an impact on the Forex market. For example, common economic indicators in the United Kingdom include Housing Prices, Gross Domestic Product (GDP), Vehicles per 1,000 People, Telephones per 1,000 People, and the Percentage of People Employed in Agriculture.

A technical analysis uses historical data as a means of predicting currency movements. The technical analyst believes that history repeats itself over and over again. Technical analysis is not concerned with the reasons for currency movements (for example, interest rates or inflation). Instead, it believes that historical currency movements are a clear indication of future ones. The technical analyst typically uses charts as a tool in predicting currency price movements.

Investopedia states that “In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, his or her decision would be based on the patterns or activity of people going into each store.”

For example, during the back-to-school buying season, the technical analyst might observe that more people are going into clothing stores than into stores selling flowers. Likewise, the technical analyst might observe that more men are going into stores selling flowers on Valentine’s Day than into clothing stores.

Here is another example. Oil prices dramatically increase, thus creating inflation. Interest rates rise as a means of controlling inflation. One historical result of higher interest rates is less money to spend, thus slowing economic growth. Another historical result is increased foreign investment in the currency affected by the higher interest rates, thus strengthening it.

Some Forex traders depend on fundamental analysis while others depend on technical analysis. However, many successful Forex traders use a combination of both strategies. The important point to remember here is that no one strategy or combination of strategies is 100% certain.