Forex is such a lucrative market where every single individual trade to earn money. Those who are still struggling with forex market might be wondering that money is the ultimate reward that every successful trader gets by trading the “financial instrument”. In real life scenario, most of the successful traders come to one conclusion that they enjoy the others benefit more, like “self-development, discipline, stable personality” etc. These are the things that they achieved during their journey to becoming a successful trader. To them, money is the least efficient outcome of the forex trading compared to the other key self-development parameters that successful traders have. A true successful forex trader will have “determination, devotion, and dedication” commonly known as 3D, embedded in their heart which will make them unique from the ordinary gentleman in the society.
The famous Elliot wave theory was developed by R.N. Elliott. This theory has changed the whole world of trading. Trend trading and identifying the reversal is very easy using the Elliot wave theory. The Elliot wave generally consists of 5 waves in the forex trending market. Out of the five waves there are three impulsive waves or motive wave and two corrective wave.
Let’s see an example of Elliot wave sequence
Figure: Elliot Wave sequence
1, 3, 5 are the impulsive wave or the motive waves formed in an uptrend. The correctives wave is 2 and 4.This simple wave theory helps the trader a lot while trading the trending
The first wave is the initial starting wave of any trending currency pair. The second wave is known as the corrective wave. The market retraces downward in second wave creating a higher low. In an uptrend formation higher low is very important since it tells us about the momentum of the trend. The third wave is the most extended wave in Elliot wave. This the trending wave of Elliot wave which creates the major move of the trend. After the major upward move the market tends to retrace a bit. Thefourth wave is the last corrective wave in an uptrend. The fifth wave is the last and final wave of an existing trend according to Elliot wave theory.
There has always been a fight between the traders to find which analysis is the best. “Should I emphasize on technical analysis or should stick to my fundamental analysis report?” It seems to be million dollar question. Don’t worry we will clarify which analysis is the best .Both “technical and fundamental analysis” is required to trade the forex market successfully. Technical analysis is the complement of fundamental analysis and vice versa.
Technical analysis: The study of price raw price data along with support and resistance level, use of different kind of indicators to find the next possible move of the pair is known as technical analysis. Traders use technical approach to spotting the potential “entry and exit point” of a trade. Different chart patterns like head and shoulder, triple top, double bottom are some of the highly reliable chart patterns used by a technical analyst for taking the trade. Potential stop loss and take profit area can also be identified by support and resistance level of the market through proper technical analysis. Some trader also uses indicators and oscillators to filter the false signal and spike.
Fundamental analysis: Fundamental analysis is based on the economic news release. Traders analyze different major economic news of a currency pair and gauge the strength and weakness of the pair. Trend change occurs in the forex market when major any major economic news is released. “The interest rate, minimum bid rate” etc. are one the major economic data release strong enough to wash away support and resistance level in a second. “Professional short time traders trades on news and make quick cash from the volatility created in a news event.”
The best trading result can be achieved by combining the technical analysis and fundamental analysis. The confluence of both types of analysis leads to the generation stable and high-quality signals. However, some technical traders totally ignore the fundamental analysis of the forex market. They solely depend on of price action and chart data. But in forex, there is a term “History repeat itself”. Professional technical traders make the profit from the reoccurring chart pattern and price movements. On the contrary, the trader who uses the news to trade the pair is often known as scalpers. They enter into a trade right after the major news event. They use tight stop loss while trading the news. “News trading can be extremely profitable if executed successfully.”
Now in today’s modern world traders are way smarter than before. They know how to filter out the best trade from the market. All the traders are now trading the forex market with technical and fundamental analysis report. If both of them generate the same signal than they take the trade. Or else nothing is executed in the market. Technical traders now know the timing of the major economic news release to save their trade from false spike and make maximum profit. On the contrary fundament traders also knows something big is going to happen in the market since the economic data is either over valued or undervalued. Regardless of technical analysis and fundamental analysis, it’s almost certain that every single person who wants to be a professional trader must have proper money management skill. This skill is even more important than the technical and fundamental analysis.
Forex Trading is considered to be one of the most profitable business in the whole world. Surprised with the word “business”? Well, the most successful trader who enjoys a high standard life by Forex trading treats this as a business. But there is hard truth behind Forex trading. Very few traders can actually become a professional trader in real life.
GBPUSD is one of the most widely traded currency pair in the world. The trending popularity of the GBPUSD pair is due to the fact of low spread compared to its movement and less noise in the course of price action.
GBP USD daily chart
Figure: Trading GBPUSD with ADX and trend line
In the above figure a trend line is drawn with the higher low of the current prevailing uptrend ascending towards the resistance. Trader make sure that the trend line is drawn with minimum three point connected to each other. Once the market reject the key resistance for the final time it breaks the short term up trend line and forms the new bearish trend. ADX helps to identify the establishment of a new bearish trend.
Trading condition and entry signal
- The pair should be trending and price must be near to the key support or resistance level. This is very the first condition of trading the GBPUSD daily chart with this strategy.
- Traders must draw the key support or resistance area in the daily chart .The support or the resistance zone should be tested twice at least.
- ADX indicator should be used with its default value. When the green line cross above the red line it means uptrend is in action and when the red line cross below the green line it means the bearish trend is in action.
- The black line in the ADX indicates the strength of the trend. Before considering the black line the traders must confirm that a prevailing long-term trend is present in the market which going to bottom or tops the price.
- As soon as the redline goes above the green line along with strong trend momentum trader can expect that the breach of current line support will be broken.
- Traders take their short entry with a valid break out of the trend line with a stop loss above the last high made by this pair. This trading strategy is extremely profitable when there is chance of imminent trend reversal.
- While taking any trade using this trading strategy proper money management system should be followed. No system is 100% perfect. Hats why professional trader use money management technique to save their hard earned money in the forex market. Never risk more that 2-3 % of your account equity and trade within in your risk tolerance level.
- Before taking this system live in to market its advices that trader use this technique for at least two month with virtual dollar provided in the demo account. Even all the professional traders also switch to demo trading before making any change into his trading strategy.
Swap free Forex accounts are set up specifically for Islamic Forex trading. These accounts specifically apply to Forex accounts that must be free of swaps and interest earnings. All of these accounts comply with Shariah laws and do not accumulate interest or swap fees. The swap free Forex accounts are free from Riba, which is unearned interest. There are also no roll over charges. Anyone can apply for a swap free Forex account as long as they do not abuse the privilege. If brokers feel you are taking advantage of the swap free account they have the right to cancel the account.
Islamic jurists generally agree that the currencies of different countries can be exchanged with those of different countries on a spot basis at a rate that is different from units. This is because currencies of different countries are unique and have different intrinsic values and purchasing power. There is also an agreement that the currency exchange is not permissible on a forward basis, this means that when the rights of both of the parties relate to an upcoming date.
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