The trading techniques we use to make profits
Trading is full of challenges, something every trader knows well. Although it may seem risky, complicated, and difficult, there are still simple methods that can help us make profits and potentially generate additional income in the long run. In this article, we will share easy trading techniques for making profits from various trading styles that everyone can apply in their daily lives. Whether you’re a beginner or a professional trader, you can definitely follow these methods.
1. Understand the basics of the currency exchange market
Before traders analyze charts to profit from Forex trading techniques, it is essential to learn the basics and structure of the market first. This includes understanding different types of trends, such as uptrends, downtrends, or periods when the market is trendless. This helps to grasp the general direction of market movement. Once we understand the market trend at that time, traders can find opportunities to enter trades following that trend.
A common caution from many experienced traders is to avoid trading during periods when the market lacks a clear trend or trading against the market trend. Therefore, we choose to analyze and plan our trades based on the prevailing trend at that time.
2. Understand Support and Resistance levels
Support and resistance are fundamental concepts in the currency exchange market that help traders better understand and predict price movements. These two levels are significant in technical analysis because they represent points where the price may change direction or experience increased volatility.
-Support levels usually form at points where market participants agree that the price is too low and presents a buying opportunity. This increases buying pressure and helps prevent the price from falling further. It is also identified when the price drops to a certain level multiple times and then reverses upward.
Example:
If the price of the XAU/USD currency pair has previously dropped to 2400.00 several times and bounced back each time after touching 2400.00, traders will view 2400.00 as a strong support level. If the price reaches this point again, traders may consider placing a Buy order, expecting the price to bounce back up once more.
-Resistance levels usually form at points where market participants agree that the price is too high and presents a selling opportunity. This increases selling pressure and prevents the price from rising further. It is also identified when the price rises to a certain level multiple times and then reverses downward.
Example:
If the price of the XAU/USD currency pair has previously risen to 2500.00 several times and then dropped back each time after touching 2500.00, traders will view 2500.00 as a strong resistance level. If the price reaches this point again, traders may consider placing a Sell order, expecting the price to drop again.
3. Understand how to identify Demand and Supply Zones
It is a popular trading technique used by traders to analyze charts and find profitable entry points based on important market zones where there is a large and intense volume of buying and selling pressure. This method is similar to support and resistance levels but differs in that Demand and Supply Zones represent price ranges or zones. When the price moves within these zones, traders look to enter trades, whereas support and resistance refer to single price points with significant meaning.
Demand Zone is a price area where, when the price reaches this point, strong buying pressure pushes the price to reverse and move upward. This indicates the market’s demand for buying the asset within that zone. There are two types of Demand Zones:
-DBR (Drop-Base-Rally): The price was previously in a downtrend (Drop), then consolidates in a base area (Base), and afterward reverses direction to an uptrend (Rally).
-RBR (Rally-Base-Rally): The price was previously in an uptrend (Rally), then consolidates in a base area (Base), and afterward continues to rise, maintaining the uptrend (Rally).
Supply Zone is a price area where, when the price reaches this point, strong selling pressure pushes the price to reverse and move downward. This indicates the market’s demand to sell the asset within that zone. There are two types of Supply Zones:
-DBD (Drop-Base-Drop): The price was previously in a downtrend (Drop), then consolidates in a base area (Base), and afterward continues to drop, maintaining the downtrend (Drop).
-RBD (Rally-Base-Drop): The price was previously in an uptrend (Rally), then consolidates in a base area (Base), and afterward reverses direction into a downtrend (Drop).
4.Risk Management
Risk management is essential to help us minimize potential losses and protect our capital over the long term. When we manage risk effectively, it also increases our chances of surviving in highly volatile markets. The main risk management methods I use are:
1. Using Stop Loss
Opening orders with discipline and consistently setting Stop Loss helps reduce capital losses by preventing losing trades from causing excessive losses. It also protects your funds from sudden market volatility, such as slippage events.
2.Using Take Profit
Setting a Take Profit allows us to define our profit targets before the market reverses, helping to secure gains and reduce the risk of losing the profits we’ve made.
3.Stick to the Plan
What really leads to success in trading is sticking to the plan you’ve set. You have to be patient and accept when the chart moves in the opposite direction of your analysis. Once you can accept that, it helps strengthen your mindset. Then, you’ll be better prepared to face the uncertainties of the market in the future.
Conclusion
The trading techniques above can be tried and adapted by every trader to fit their own style. Although making a profit from trading isn’t easy, it’s definitely not impossible for us. With proper planning, the right trading techniques, and suitable strategies, we can achieve success in trading. It all depends on careful planning, studying the market, managing risk, and controlling emotions. If we consistently follow these principles, we’ll have a good chance of making sustainable profits from trading.
But I want every trader to remember that trading always involves risk. Consistently studying the market and improving your skills according to market changes will help you face challenges and definitely enable you to make profits from the Forex market in the long run.
