The SIX KEY PILLARS of FOREX

There are SIX KEY PILLARS of FOREX and knowing how they apply to your trading can greatly help you get success in trading the largest market in the world...FOREX! The six pillars as seen above are Fundamental and Technical Analysis, Risk Strategy, Trading Journal, Strong Mindset, and One Strategy.

When it comes to analyzing the market, there are traders that say technical analysis is king, while others say fundamental analysis is king. However, my opinion is with those that say a combination of both is best. However, arguments can be made for and against both. Fundamental Analysis is why a currency moves a certain way..up or done such as Interest Rate differential while technical analysis is used for entries. However, if you must error to one side, I like to error on the side of technical analysis.

Why you ask?

Because in every book that is taught out there with fundamental analysis (using interest rate decisions as an example), when the central bank raises the interest rate it is bullish for the currency. Yet...how many times have you seen an interest rate increase and then seen the currency just sell off? I've seen it a few times and vice versa when interest rate is decreased and the currency turns bullish.

So having an understanding of why a currency is moving a certain way aka fundamental analysis can add to your confluences in technical analysis to pull the trigger on the trade you want. But being successful in forex is much more then knowing how to analyze the market.

You must have a great Risk Management strategy. You want to keep your hard earned profits don't you? Then you need to develop a strategy that ensures you are taking proper risk on trades but most importantly, the strategy you develop is to protect your account from being blown-up! You want to be able to trade the next day and get those pips and profits. But what is the proper risk on trades. Most say it should be based on your account size, percent of risk you want to take - 1%, 3%, 5%, etc, and your stop-loss. I agree with the statement but the risk is completely up to you. If you have more confluences then normal, do you risk more? Well.....thats up to you!

But just as important in risk management is tracking your trades. You can have a trading journal but the key is to use it. Track your trades...what pair, what direction, why? etc. Then use it as a learning tool and review your trades. Do you review daily or weekly or monthly? I prefer daily but I think it comes down to how many trades you are taking on a daily, weekly, and/or monthly basis. When you use it as a tool, you'll start recognizing good setups more but also saying away from those setups that tend to cost you. It's a great tool to implement!

One of the most important pillars that is rarely talked about is having a strong mindset. I could talk about this forever because it is purely on the psychology of trading. The key is what everyone says it is; to trade emotionless. You want to have a set of rules that you follow for each trade you take. If the check-marks don't hit every rule then don't trade it. What this allows is for you to take the emotion out of the trade. Every good trader has a set of rules he/she follows. Basically, its a set it and forget it mentality because they all know they will have a losing trade here and there. And the rules...what should they be?

Well....it's based off of your strategy. Determining your strategy comes down to what type of trader you are. Are you swing, day, or intraday trader? The key is to only use one strategy. Master that strategy first. Learn all of its nuances, develop your rules, get your confidence with it. Then what is next? Get profitable with it. Don't, I repeat "Don't" keep jumping from one strategy to the next. All you will do is confuse yourself even more and the effects of that are a blown account or multiple losses in a row. Read PFX's Blog Post - The Shiny Object Syndrome for a more in-depth look at why jumping is bad...Just DON'T JUMP FROM ONE STRATEGY TO THE NEXT.....MASTER ONE STRATEGY BEFORE ADDING TO YOUR TRADING ARSENAL.

If you want to see how the team at Prosperity Forex handles all of this, then check us out at www.prosperityforex.com.

Happy Pips & Happy Trading!

PFX