Also, note that Fibonacci retracements can be used in both bull (uptrend) and bear (downtrend) markets. You will need to look for retracement levels and use them with your candlestick patterns to confirm your trades.
Technical Indicators Based on different mathematical calculations, technical indicators are statistics of past market data. Traders use them extensively in their technical analysis to predict currency trends. The two major technical indicators are:
Trend following indicators reflect the direction and the strength of a current trend. Traders may enter a position when the trends following indicators are showing the current trend in a strong momentum in either direction.
The most common trend following indicators are moving averages and Bollinger bands.
Oscillators are indicators banded between two extreme values that reflect short term overbought or oversold conditions. The most common oscillators are RSI (relative strength index), MACD (moving average convergence difference) and stochastic.
Most charting packages usually include the common technical indicators or you can find a charting package and add the indicators that you want if they aren't included
Determining Your Strategy Now that you understand a bit more about how the forex market works, you need to determine your trading strategy. There really is only one method... trial and error.
I can suggest to you to open up a Demo account (there are many available) although I believe that it makes a huge difference when using real money. So open up a demo account if you wish, but use it to learn the terms and such - then try it for real. Remember, slow and steady wins the race!
The truth be told, almost any proven forex strategy does have the potential for profit. Some have a greater potential for profit, but also carry higher risk, and vice versa.
Every strategy can be put into one of two main categories... long term or short term.
The Long & Short of it
Basically self explanatory, long or short positions are essentially that, the truth being, that you could even incorporate both types into your strategy. You must be watching the market constantly, so that you are able to pick out the best times to buy or sell, as well as placing specific orders.
Now on the other end of the stick, long term positions tend to be more stable, as well as significantly less risky, thus aren't usually as quick to produce substantial profits. But you are able to ride out any small fluctuations and wait to buy or sell until the time is right.
Furthermore, long positions are more leisurely and require a lot less attentiveness. It is a personal preference and my best advice is to try them both and se what works best for you. You may decide to do both and that's okay too.
The Fundamentals of Risk Management
Hopefully now you understand that the forex market behaves a bit different than other markets. Currency markets are highly speculative and volatile in nature. Any currency can become very expensive or very cheap in a matter of days, hours or sometimes even minutes.
The unpredictable nature of this market is one of the things that attract traders to the currency market. With that being said money management is critical and makes the difference between the winners and the losers.
