6 stages To A Rule-Based Forex Trading System

Step 3: Choose a market that trades harmoniously

(A) Select a currency pair and test it over different time periods. Start with the weekly charts and then move on to the day, four-hour, two-hour, one-hour, one-hour, 30-minute, 10-minute, and five-minute charts. Try to determine whether the market rotates most of the time at strategic points, such as Fibonacci levels, trend lines, or moving averages. This gives you a sense of how the currency is traded in different timeframes.

(B) Set up support and resistance levels in different timeframes to see if any of these levels come together. For example, for a 127-Fibonacci extension in the weekly time frame, the price may also be the price for a 1,618 extension outside a daily time frame. Such an accumulation would persuasive the support or resistance at this point of exchange. (To learn more, see Advanced Fibonacci Applications).

Repeat this exercise with different currencies until you find the currency pair that you think is most predictable for your methodology.

(C) Remember that passion is the key to action. Repeated testing of your setups requires that you love what you do. With enough passion, you will learn to assess the market accurately.

(D) Once you have a currency pair that makes you feel comfortable, start reading the news and comments about the currency pair you selected. Try to determine if the fundamentals support what you think the chart tells you. For example, if gold rises, that might probably be good for the Australian dollar, as gold may be a commodity that’s generally positively correlated with the Australian dollar
. If you think gold is going down, then wait for the appropriate time on the chart to short-circuit the Australian dollar. Pay attention to a resistance line that is the appropriate line in the sand to get a confirmation of the timing before you trade.

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