What is the Most Profitable Trading Method for Beginners in the Forex Market?admin 27 November 2022
what you read here:
- 1 6 General Principles for Beginners to Trade Successfully
- 1.1 1. All news, events and fundamental analysis eventually lead to price changes
- 1.2 2. All financial markets have three trends
- 1.3 3. All Processes have three parts;
- 1.4 4. To Confirm a Trend, indicators must confirm each other
- 1.5 5. The Trading Volume must be consistent with the trend
- 1.6 6. Trends tend to continue as long as there is no effective news in the market
- 2 Conclusion
The forex market is one of the most complex and risky financial markets in the world. If you operate on it consciously and with sufficient knowledge, you can make reasonable profits on this market. The question is, how can Forex market be profitable for beginners?
Remember that for a successful business you should always have enough expertise. Trading on the foreign exchange market is no exception. In this article, we will focus on some pieces of advice that experienced traders in this market give to beginners in order to make a reasonable profit with the least risk.
6 General Principles for Beginners to Trade Successfully
Charles Dow, an expert in technical analysis, has suggested 6 general principles that beginners should follow to be successful in the forex market.
1. All news, events and fundamental analysis eventually lead to price changes
According to Charles Dow’s theory, all news, events and fundamental analysis eventually lead to price changes and price changes in free financial markets lead to changes in the volume of supply and demand in the market. In other words: When supply is greater than demand, price decreases, and when demand is greater than supply, price increases. This theory states that even if new traders do not know about the news or the news has not been released yet, the market leaders usually know about it before the news is released, they are able to adjust the supply and demand ratio in the market with the capital they have, which will eventually affect prices.
2. All financial markets have three trends
In all financial markets, there are three trends, An uptrend, a downtrend, and a neutral trend, and prices always tend to move in their trend.
Charles Dow advises beginners in the foreign exchange market to always trade with the trend. In this theory, Mr. Dow compares the market to a river and says that a beginner never swims against the flow.
3. All Processes have three parts;
According to Mr. Dow’s theory, all market developments consist of three parts, divided on the basis of traders’ emotions and desires.
The first part is concentration and accumulation: in this part, big traders enter the market before the trend starts. In other words, in this part, smart and big traders notice the price changes before the start of a trend, and with the amount of capital they have, they usually start a trend. At this point, there is usually a neutral trend and the trend is then formed when large investors enter the market. At this time, trading in the market (neutral trend) is very risky, and according to Mr. Dow’s theory, neutral trend is very dangerous for small traders and beginners. Beginners are even advised to stay away from neutral trend.
The second part is the involvement of the public. At this point, the market trend has been formed and the direction of the market is set. Small traders and beginners enter the market and follow the trend, or in other words, these traders ride the wave created by major traders and investors. If small traders find the right entry and exit point at this time, they can make reasonable profit in the market.
The third part is the distribution phase. In this stage, a number of experienced traders who have made their profits start to sell, but not all at once. At this stage, distributors are still experiencing the continuation of the trend, but the speed of the trend has slowed down a lot. Of course, when news is released that leads to a continuation of the trend, small and inexperienced traders usually leave the market before this news due to their fear and greed. Wisdom can detect these corrective movements using Fibonacci tools.
4. To Confirm a Trend, indicators must confirm each other
According to Mr. Dow’s theory, in financial markets, indicators that are related to each other must be aligned to form a trend. For example, if the trend of gold price against the dollar is upward, the dollar index should have a downward trend. In this example, if the dollar index is rising and the gold price is also rising, it cannot be a long-term trend according to Mr. Dow’s theory, but it will be corrected quickly. This point should be kept in mind by inexperienced traders.
5. The Trading Volume must be consistent with the trend
According to Mr. Dow’s theory, since supply and demand determine the price, if the trend is up, the transaction volume and demand for purchases should be higher, and if the trend is down, the transaction volume for sales should be higher. Otherwise, it is a fake trend that shows only speculators have entered the market to increase or decrease the price, and the trend will soon be corrected. New traders should beware of these unrealistic trends.
6. Trends tend to continue as long as there is no effective news in the market
According to this theory, a trend change occurs when the price does not have the potential to break the previous tops or bottoms. In other words, the trends change when the market news also changes. If no important news is released in the market, the trends will not change and the price will move in the same trend as before.
According to the experience of senior people and financial market professors, beginners who follow these 6 principles of Dow Theory and also do risk management and capital management in their transactions can be successful in this market.
In conclusion, it is worth remembering that trading in financial markets and using trading levers is very risky. Following the advice of professional traders and analysts, the use of profit and loss limits and the volume of rational transactions can significantly reduce the risks in the financial markets and make the trading profitable for beginners.