Formulating a Trading methodology in Forex

Losing in trading is obviously terrifying. It’s important that we don’t judge our trading based on a few trades-be they good or bad. What needs to be understood is that fortunes can be made in forex. It is keeping them that that is necessary. In forex you cannot get different results while doing the same thing. And people do sadly believe that same actions will yield different results.

Successful trading requires that we recognize patterns of beliefs/errors and rectify them at the earliest. Same actions cannot bring different results in forex.
Observation and rationale can help us do that. As such it is rather difficult because the nature of market is at the best random corroborations. And traders will vouch for this because forex market can be seen to apparently punish a good follow while rewarding a bad practice.
In fact in forex market as a trader you can lose for all the right reasons and someone else may win for all wrong reasons. This can be confusing as to what might be right even while it is wrong and vice versa of course. This is sole reason forex trading can be confounding and unsuccessful/unprofitable. This requires that traders adopt a comprehensive trading tactic to become competent traders.


Successful Trading in forex depends a lot on your strategy and method. I always like to emphasize that trading methods in forex needs to be comprehensive.
Discipline is one of the chief attributes of a successful trader. Disciplined traders never trade without a plan. In fact planning the trade is the survival tactic in forex trading and planning is the key to steady capital growth. It is here where the most traders fail. While trading in live markets, novice traders especially, find it hard to practice the same discipline they had while on demo/virtual accounts.


I would like to outline some basic trading methodologies for risk and money management in this next and the coming post. By no means would I say a trader has to use any of these although I really hope them to be helpful to novice traders and hope you may find something worthwhile to incorporate.

The first begins with determining the kind of market you are comfortable trading with. There two major preferences for entering the market. As a trader you can either be a trend follower or counter-trend trader. Or let’s say- a “pro trend” and an “anti trend” trader.
Traders who follow the trend mostly try to catch the long range trends.Sorry again for the blurred pictures.
From the above figure it can seen that the EUR/USD is on the downward trend for about two weeks. Now a pro trend trader would try to enter while he sees a probability of the downward trend continuing. See the trader open a short position on 4th Oct and keeping it open until 15th when there is the sign that trend will continue

A counter trend trader, on the other hand tries to trade the consolidations or range in the market. He won’t just stick to markets that show long term trends. Markets are possible to move in three directions at a given pin of time-up, down, or sideward. An anti trend trader will prefer to trade the up and down movements of sideward (ranging) market.
Here, the anti-trend trader will attempt simple philosophy to buy low and sell high or vice versa –sell high and buy low.

It can be seen above that the trader will short the pair while it reaches a certain high level while long it when it reaches a sure low level/s.
These figures show only a basic or say a rough outline of course. This actually requires the trader has sound technical analysis to back up his forecasting abut the market sentiments. An anti-trend trader tends to rely very much on the support and resistance levels and needs to be prepared to trade opposite the current trend if he thinks trend will witness a retraction or a pull back. Such traders also need to be alert about price breakouts which can threaten their position.

Next up let’s see the trading styles, tools and practice.