A consistently successful trader always has a defined trading method. Guessing or going by your gut doesn’t always work. Without a defined trading method there is no way for you to know what constitutes a buy or a sell signal, or to even consistently identify the trend. Decide what your method is, which technical indicators or other tools (e.g. candlestick analysis, etc.) you will use, what your buy or sell signals are, and finally define how you plan to exit a position, with a take profit and a stop loss in place.

Remember:
                                 Plan your trade, and trade your plan. Always!

The RSI or Relative Strength Index is an indicator that measures the strength of all upward movements against the strength of all downward movements, and identifies turning points by indicating overbought and oversold levels. In trending markets, it can detect momentum change; while in ranging markets, it can spot overbought or oversold conditions. The RSI gives a reading between 0 and 100. If it is greater than 50, the upward force is stronger than the downward force, and if it is below 50, the downward force exceeds the upward force. For us to derive any signal from the RSI though, we normally look for readings greater than 70 or 80, or below 30 or 20. An RSI above 70 indicates that the instrument we are looking at is overbought, pointing to a potential sell opportunity. A more conservative trader may wait for the RSI to exceed 80 before selling, as this is considered an even stronger overbought signal. By the same logic, the opposite is true when the RSI is low – an RSI below 30 indicates an oversold market and gives a potential buy signal, while an RSI below 20 gives an even stronger buy signal.

For example, if RSI is rising above 70, which is your preferred RSI reference level, you may choose to sell the instrument when the price turns back down below the reference level of 70, placing your stop loss just above the most recent high. Note that a common mistake is to sell the instrument as soon as the RSI reaches your overbought level, and not wait for it to move back down. This can be a costly mistake as the RSI can continue to move up with the price, so always wait for a move lower before getting in. Again, the exact opposite is true if prices are moving in the other direction; when the RSI reaches or passes below your oversold level and then rises back up above it, this can be considered a buy signal and you may choose to buy the instrument, with a stop loss below the most recent low. Most trader’s use 70 as their overbought reference level and 30 as their oversold level, and the most common parameter setting for the RSI is period 14. However, whatever levels you use in your trading, you should still stick to the rules we just mentioned, waiting for the RSI to come out of the extreme zones before acting.

Aside from showing overbought and oversold conditions, MACD also gives signals when the signal line and the MACD lines cross over each other. The MACD line crossing above the signal line is a buy signal, and crossing below is a sell signal.

Finally, you can also get important information by looking at the slope of the MACD line relative to the price trend. Most often, they will move up or down in tandem, but occasionally they will either converge towards each other or diverge away from one another. When you see the price moving higher while the MACD is moving lower, this is a signal that the trend is weakening, and that we may even see a trend reversal soon. The reverse also holds that when the price moves lower while the MACD moves higher, then the signal is that the trend is weakening.

‘Trend’ is a term used to describe prices moving in the same direction over time. When prices are generally rising, this is known as an uptrend, and when they are falling, this is a downtrend. Prices tend to trend only 20-30% of the time, which means that the remaining 70-80% they are trading in a range or without a clear direction. For this reason, it is important to have a clear way of identifying the existence of a trend, or lack thereof. There is a simple rule traders use to confirm a trend. In an uptrend, we look for two consecutive higher highs and higher lows in an uptrend, and a third higher high confirms the uptrend in a downtrend, we look for two consecutive lower lows and lower highs, with a third lower low confirming the downtrend. Start by checking for a trend on a shorter time frame, and once you identify it, run the same check on a longer time-frame. For example, if you confirm a trend on the 30 minute chart, look at the 4 hour chart and also confirm it there. If you get confirmation, go back to the first time frame and look for a good entry point. Remember, the trend is your friend, meaning it is less risky to trade in the same direction as the trend than to go against it. For this reason, if you identify an uptrend it is safer to buy, and if you find a downtrend, it is safer to sell.

Traders can place limit orders to buy at the support line...

Eventually, the price will stop following the trend and fail to reach a new high or low. It will stall, and then reverse direction. Traders often use another rule to identify trend completions or reversals. During an uptrend, if the price reverses down and dips below the most recent low, then it may be a sign that the uptrend has broken. Similarly, if during a downtrend the price bounces up and rises above the most recent high, the downtrend may have come to an end (see image above). Drawing a trend line on your chart can help you see the trend and decide when to enter or exit a trade. To draw an uptrend line you need to connect at least three lows. For a downtrend line you need to connect at least three highs. For a downtrend line you need to connect at least three highs (see next image).

Traders can place limit orders to sell at the resistance line..

This chart type is least informative and line charts are mostly useful for identifying trends. However, this type of chart is the least informative as it only shows the closing price for a series of periods.

Bar charts provide traders with four key pieces of information within any time frame: the opening, closing, high and low prices during each interval.

Bar charts can be viewed in many different time-frames, and hence a single bar can summaries price movements over the past minute, over the past month or even further back in time. Different traders use time-frames in various ways, although a good rule of thumb is that the longer the time-frame, the greater its significance, as it accounts for more data and hence better reflects the market’s psychology.

Candlestick charts are similar to bar charts as they also contain each interval’s open, close, low and high prices. The main difference is that the candlestick chart has a body, which represents the range between the opening and the closing prices of a particular time-frame. In this example, when the candle’s body is red, it means that the closing price was lower than the opening. When the body is green, it means that the closing price was higher than the opening. Above and below the candlestick’s body are the ‘wicks’. The top of the wick represents the highest price reached within the interval, and the bottom of the wick represents the lowest price.

Technical analysis is the study of historical price movements by using charts in order to predict future price movements. Charts, and all the various technical analysis indicators that can be applied to them, are essential tools for traders. In its most basic form, technical analysis helps you to identify entry and exit points for your trading.Charts are a major tool in Forex trading. A Forex chart is a graph representing the movement of market prices during a specific time period. There are many kinds of charts, each of which helps to visually analyze market conditions, identify behavioral patterns, and assess and create forecasts. When traders perform technical analysis, they usually overlay lines on a chart and apply technical indicators to reach conclusions about future price action.

Three of the most popular chart types are bar, candlestick and line charts. At easy-forex, you can view all three types, and choose the one that best suits your trading strategy. Aside from choosing a chart type, when looking at a chart traders also need to select which timeframe they want to analyze. A chart is usually composed of many points or bars or candlesticks, each representing a period of time. In a 30 minute timeframe, the individual point or bar or candlestick shows what happened to the price by plotting the opening, closing, high and/or low price of each 30 minute interval. Timeframes can be chosen and changed by traders, and we’ll look at them in more detail later. Let's take a closer look at each of the different chart types a trader can follow and the benefits of each choice.

Correlation is a statistical term describing the relationship between two variables. Professional forex traders have long known that trading currencies requires looking beyond the world of forex, because currencies are moved by many factors - supply and demand, politics, interest rates, economic growth, and so on. More specifically, since economic growth and exports are directly related to a country's domestic industry, it is natural for some currencies to be heavily correlated with prices of the main commodities a country exports or imports. Highest correlations with gold and oil can be found with the Australian dollar (large gold exporter), and the Canadian dollar (large oil exporter). Another currency that is affected by oil prices but has a weaker correlation is the Japanese yen (large oil importer). Knowing which currency is correlated with which commodity can help you understand and predict certain market movements before they happen, increasing your chances of success.

Gold and the Australian dollar

Trading the Australian dollar (AUD) is very similar to trading gold. As the world's third-largest producer of the precious metal, the Australian dollar and the precious metal are highly correlated – for example, their monthly correlation between 2000 and 2012 was 89%. During times of market uncertainty such as economic or political troubles, gold, represented by the symbol XAU, serves as a safe haven and a hedge against inflation. As commodities such as gold act as a store of value that is likely to outlast market uncertainty in these troubled times, their price tends to rise. As gold is commonly traded against the USD, the two have a mostly inverse relationship, meaning that a higher gold price generally results in a weaker US dollar and vice versa. When the US dollar depreciates, it becomes cheaper to buy gold. Therefore AUD which is correlated to gold also rises. The AUD is commonly referred to as a commodity currency because of its heavy reliance on the export of metals such as gold.
The Canadian dollar and the Japanese yen

Just like the AUD is affected by the price of gold, the currency of a country like Canada which is a large oil producer tends to be affected by changes in the price of oil. The Canadian dollar (CAD) usually strengthens on increases in the price of oil, and weakens when oil price falls. On the other hand, a country like Japan which is heavily reliant on oil imports benefits when oil is cheap, but is Note that correlations can become stronger or weaker with time, and the relationship between AUD/USD & Gold and CAD/JPY & Oil is therefore not always stable. For this reason, as a trader you should always have a sufficiently funded account and be cautious when placing a trade on a currency pair based on recent oil or gold price moves, negatively affected when oil prices rise.