Traders will do well to keep in mind

=> Pay attention to pivot levels.
=> Trade with an edge.
=> Preserve your trading capital.
=> Simplify your market analysis.
=> Place stops at genuinely reasonable levels.

Winning Forex Trading Step #1 – Pay Attention to Daily Pivot Points
Paying attention to daily pivot points is especially important if you’re a day trader, but it’s also important even if you’re more of a position trader, swing trader, or only trade long-term time frames. Why? Because of the simple fact that thousands of other traders watch pivot levels.

Pivot trading is sometimes almost like a self-fulfilling prophecy. What we mean by that is that markets will often find support or resistance, or make market turns, at pivot levels simply because a lot of traders will place orders at those levels because they’re confirmed pivot traders. Therefore, often times when significant trading moves occur off pivot levels, there is really no fundamental reason for the move other than a lot of traders have placed trades expecting such a move.

We’re not saying that pivot trading should be the sole basis of your trading strategy. Instead, what we’re saying is that regardless of your personal trading strategy, you should keep an eye on daily pivot points for indications of either trend continuations or potential market reversals. Look at pivot points and the trading activity that occurs around them as a confirming technical indicator that you can utilize in conjunction with whatever your chosen trading strategy is.

Winning Forex Trading Step #2 – Trade with an Edge
The most successful traders are those who only risk their money when an opportunity in the market presents them with an edge, something that increases the probability of the trade they initiate being successful.

Your edge can be any of a number of things, even something as simple as buying at a price level that has previously shown itself as a level that provides significant support for the market (or selling at a price level that you’ve identified as strong resistance).

You can increase your edge – and your probability of success – by having a number of technical factors in your favor. For example, if the 10-period, 50-period, and 100-period moving average all converge at the same price level, that should provide substantial support or resistance for a market, because you’ll have the actions of traders who are basing their trading off any one of those moving averages all acting together.

A similar edge provided by converging technical indicators arises when various indicators on multiple time frames come together to provide support or resistance. An example of this may be the price approaching the 50-period moving average on the 15-minute time frame at the same price level where it’s approaching the 10-period moving average on the hourly or 4-hour chart.

Another example of having multiple indicators in your favor is having the price hit an identified support or resistance level and then having price action at that level indicate a potential market reversal by a candlestick formation such as a pin bar or doji.

Winning Forex Trading Step #3 – Preserve Your Capital
In forex trading, avoiding large losses is more important than making large profits. That may not sound quite right to you if you’re a novice in the market, but it is nonetheless true. Winning forex trading involves knowing how to preserve your capital.

No less a trading wizard than the great Paul Tudor Jones, creator of the hugely successful hedge fund, the Tudor Corporation, has flatly stated that “The most important rule of trading is to play great defense.” (By the way, Tudor Jones is an excellent trader to study and learn from. Not only does he have a nearly unparalleled record of profitable trading, but he is also a major philanthropist and was instrumental in creating the ethics training program that was eventually adopted as a requirement for membership on all U.S. futures exchanges.)

Why is playing great defense – i.e., preserving your trading capital – so critically important in forex trading? Because the fact is that the reason most individuals who try their hand at forex trading never succeed is simply that they run out of money and can’t continue trading. They blow out their account before they ever have a chance to enter what turns out to be a hugely profitable trade.

It’s only a slight exaggeration to say that having and faithfully practicing strict risk management rules almost guarantees that you will eventually be a profitable trader. If you just manage to preserve your trading capital by avoiding suffering crippling losses, so that you can continue trading, eventually a huge winner – a “home run” trade – will pretty much just fall into your lap and exponentially increase your profits and the size of your account. Even if you are far from being “the world’s greatest trader,” the luck of the draw, if nothing else, will have you eventually stumble into a trade that produces more than enough profit to make your year – or possibly even your whole trading career – a massively profitable success.

But in order to enjoy that trade, you have to have sufficient investment capital in your account to profit from such a trading opportunity whenever it happens to come along.

Paul Tudor Jones is not the only market wizard to counsel traders to utilize an approach to trading that basically consists of, “Just avoid losing all your money until a trading opportunity comes around that is somewhat akin to having a million dollars dumped on the ground in front of you, and all you have to do is pick it up.” No, trading opportunities like that don’t happen every day – but they do happen regularly, and more often than you might imagine.

To reiterate (because it can’t be emphasized too much): The most important practice for successful trading is minimizing your losses – by avoiding overtrading or taking on too much risk in any single trade – and thereby preserving your investment capital.

Winning Forex Trading Step #4 – Simplify your Technical Analysis
Here are pictures of two very different forex traders for you to consider:

Trader #1 has a large, swanky office, a top-of-the-line, specially-made trading computer, multiple monitors and market news feeds, and plenty of charts, all of which are loaded with at least eight or nine technical indicators – five or six moving averages, two or three momentum indicators, Fibonacci lines, etc.

Trader #2 works in a relatively spare and simple office space, uses just a regular laptop or notebook computer, and an examination of his charts reveal just one or two – perhaps three at most – technical indicators overlaid on the market’s price action.

If you guessed that Trader #1 is the super-successful, professional forex trader, you probably guessed wrong. In fact, the portrait drawn of Trader #2 is closer to what a consistently winning forex trader’s operation more commonly looks like.

There is virtually an endless number of possible lines of technical analysis that a trader can apply to a chart. But more is not necessarily – or even probably – better. Considering a virtually limitless number of indicators typically only serves to muddy the waters for a trader, amplifying confusion, doubt, and indecision, and causing a trader to miss seeing the forest for the trees.

A relatively simple trading strategy, one that has just a few trading rules and requires consideration of a minimum of indicators, tends to work more effectively in producing successful trades. In fact, we know one very successful forex trader, a gentleman who takes money out of the market almost every single trading day, who has exactly ZERO technical indicators overlaid on his charts – no trend lines, no moving averages, no relative strength indicator, and certainly no expert advisors (EAs) or trading robots.

His simple market analysis requires nothing more than an ordinary candlestick chart. His trading strategy is to trade high-probability candlestick patterns – such as pin bars (also known as the hammer or shooting star patterns) – that form at or near support and resistance price levels that are identified simply by looking at the market’s previous price movement.

Winning Forex Trading Step #5 – Place Stop-loss Orders at Reasonable Price Levels
This axiom may seem like just an element of preserving your trading capital in the event of a losing trade. It is indeed that, but it is also an essential element in winning forex trading.

Many novice traders make the mistake of believing that risk management means nothing more than putting stop-loss orders very close to their trade entry point. It’s true that part of good money management means that you shouldn’t put on trades with stop-loss levels so far away from your entry point that they give the trade an unfavorable risk/reward ratio (i.e., risking more in the event the trade loses than you reasonably stand to make if the trade proves to be a winner). However, one factor that frequently contributes to lack of trading success is habitually running stop orders too close to your entry point, as evidenced by having the trade stopped out for a loss, only to then see the market turn back in favor of the trade and having to endure watching price advance to a level that would have returned you a sizeable profit…if only you hadn’t been stopped out for a loss.

Yes, it’s important to only enter trades that allow you to place a stop-loss order close enough to the entry point to avoid suffering a catastrophic loss. But it’s also important to place stop orders at a price level that’s reasonable, based on your market analysis.

An often-cited general rule of thumb on proper placement of stop-loss orders is that your stop should be placed a bit beyond a price that the market should not trade at if your analysis of the market is correct.

Amazing post, thank you! This is what every new trader wants and needs to read.

Pinku Halder's

''Winning Forex Trading Step #5 – Place Stop-loss Orders at Reasonable Price Levels''

......the last, but not the least important piece of Advice. Kudos to you mate.

I have been following this forum for a long time and reading many topics. But unfortunately, such a brilliant post as you wrote is not often found. I applaud you for your work and time.

I'm sure that you meant it, but I would also like to emphasize that step #5 depends on #1 about market levels (key or marker levels). The stop loss level should be set above the key resistance level for a sell trade or below the key support level for a buy trade