Lesson 26: Building a Forex Trading Method

We often hear about "trading methods". Some even sell!

But under this expression which can impress the novices actually hides something very simple.

We have studied various techniques of analysis throughout the training. However, we have studied these techniques in isolation, without putting them in a specific order or logical approach.

The trading methods are therefore aimed at putting order in all this. To put it simply, the idea is to build a plan of action, a step-by-step tutorial to perform a trading operation.

You will have to choose what to do and in what order, from the opening of your chart to the closing of the position.

We will present below a basic but completely applicable trading method, which you can modify and adapt to your needs.

Example of trading method

Step 1: Choose your chartsFor very short-term trading we will take 2 charts. The graph in 5 minutes (each candle represents 5 minutes) for taking position, and the graph 15 minutes (or even 1 hour) to define the general trend.

Step 2: Study the peaks and troughs on the longest graphAt this point, you should point the peaks and troughs on your chart. As we have seen, the peaks and troughs will indeed occur during the tracing of all graphic figures. Furthermore, the study of peaks and troughs alone can give a good idea of ​​the meaning and quality of the current trend.

Step 3: Identify the graphic figures on the longest graphHere we will analyze the observations that were made in the previous step. Peaks and troughs will therefore be used to identify supports, resistances, trend lines, channels or particular shapes.

Step 4: Confirm the trend with moving averages on the longest chartHere we will confirm the observations from step 3 by studying the moving averages. At the end of this stage, we have defined the general trend, and therefore know in which direction it is best to position itself.

Step 5: Study the peaks and troughs on the shortestgraph Now that we have defined the general trend, we must look more precisely at what point to take a position. In a first step, therefore, the work carried out in step 2 will be resumed on the shortest graph.

Step 6: Identify the graphic figures on the shortest graphAs in Step 3, graphic figures are identified here with the highest and lowest previously pointed. At this point, we can start to find graphic trading signals (chartists). For the most cautious, only the signals in the direction of the general trend marked on the longest graph will be taken into account.

Step 7: Study the indicators on the shortest graphAt this stage, we will note the signals that the indicators can provide us, preferably by confirming them with each other. At the end of this step, we can compare the graphic signals and the technical signals, which will enable us to confirm the position taken again. Here, too, the most cautious will only take into account the signs of the general tendency on the longest graph.

Step 8: Choosing its stop and its limitAt this stage, the position is decided, and it is therefore necessary to position its stops and its limits. This will take into account the principles discussed in the lesson on risk management, as well as the important levels that can be identified with the supports, resistances, pivot points and retracements of Fibonacci .

The usefulness of trading methods

By defining in advance what you are going to study, what you are going to take into account, you will be able to extract a large part of the emotional errors. You will "rationalize" the trading, avoiding leaving any place to the blur, or choices that would not rest on logical or analytical reasoning .

But following a trading method is only part of the trader's job. It is also necessary to evaluate this method, to follow its results, and to know how to modify it to make it more effective. Moreover, the method presented here is only one example, and needs to be largely clarified.Several of the specific techniques we are studying in our Forex University are designed to accomplish these tasks.