I've been lucky enough to make some very nice profits from forex trading in 2010

I've been lucky enough to make some very nice profits from forex trading in 2010, but you can never be completely confident in your own abilities because market conditions can quickly change. So how can you make some consistent profits in 2011?

Well first of all if you're a day trader or an early morning trader, for instance, you should be aware of the average daily trading range for each of the major currency pairs. In the last few months many of the leading pairs have seen their averages fall quite considerably, as indicated by the Average True Range indicator.

So therefore if this trend continues into 2011 and we see a relatively small trading range each day, you have to take this into consideration. There is no point targeting big points gains that are well in excess of the latest ATR figure.

To give you an example, the average true range of the GBP/USD pair is currently 135 points at the time of writing (December 29th 2010). So if you are like me and enjoy trading early morning breakouts, you would have to be cautious about trading any breakouts early in the day if the overnight trading range is already in excess of 100 points, for instance.

However if the range so far is just 30 or 40 points and a breakout occurs when the London market opens, then there is much more room for the price to move strongly in the same direction for the rest of the day. This is in stark contrast to earlier in the year when the trading range was in excess of 200 points and you could be a lot more confident about the price continuing to move in the desired direction.

Another way to make money in 2011 is by concentrating on longer term trades. A lot of people focus on trying to make quick profits, but as I've already pointed out, the trading ranges are quite small at the moment for the major pairs and this could continue into next year.

You are much better off trading the 4 hour and daily charts. My main forex trading system uses the daily chart for highlighting the overall trend, and the 4 hour chart for pinpointing entry and exit points. This has worked very well for several years now, and there is no reason why this shouldn't continue to be profitable in 2011.

The major pairs will always conform very well to technical analysis on these longer time frames, and overall it is a lot easier to make money. You simply need to come up with a straight-forward trading system that is able to detect one or two high probability trading opportunities every week.

The point is that if previous years are anything to go by, there should be plenty of opportunities to make money from forex trading in 2011. This is particularly true if you lengthen your time frames and trade the longer term charts. However it is still possible to make money from short-term trading as well despite the narrow trading ranges. You just need to find the right trading method.
If LeapRate has anything to say about the forex scene in 2011, it's that traders could face lower forex trading volumes in the year ahead. LeapRate, for those of you who don't know, is an independent research and advisory firm that provides ratings for online trading and brokerages all around the world.

Basic understanding of market liquidity tells us that lower trading volume goes hand in hand with lower liquidity, which in turn, often results in a higher degree of volatility. Why is that? Well when trading volume and liquidity are low, it's more difficult to buy and sell currencies without causing big price movements.

According to LeapRate, one factor that could cause forex trading volume to shrink is stricter market regulations. Recall that the CFTC capped leverage at a maximum of 50:1 and, at the same time, imposed a requirement to close offsetting positions to avoid hedging. Regulatory agencies all over the globe, particularly in Japan and Canada, are following suit and are becoming more iron-fisted in implementing their rules.

Aside from that, LeapRate predicts that the forex market will reach its saturation point as an effect of persistent advertising by online forex brokers. They also mentioned that the decreased volatility witnessed recently could discourage new traders from entering the scene. After all, who wants to trade in a market that's barely moving?

But in this Ninja's humble opinion, I don't believe that we will see a significant decrease in trading volume in 2011.

While some regulations such as leverage limits may discourage small retail traders, let's remember that retail traders only make a tiny percentage of total market players. Multinational companies and hedge funds play a larger role in driving market liquidity and will most likely continue to do so. Besides, these regulations exist mostly in the U.S., and traders will always have the option to jump across to offshore accounts.

And while volatility seemed to taper off despite the ongoing debt crisis, there always exists the possibility of a "black swan" event that could rock the markets. After the recent consolidation, a strong trend could once again trigger large swings in volatility.

Lastly, forex brokers are becoming more and more creative with their marketing strategies in order to gain new business. Some have sponsored sports teams (what up Aston Villa!), while there are those that continuously offer trading contests. Others, like FXCM, are opening offices across the world, in order to provide more services and reach out to a broader range of clients.

All in all, 2011 should be yet another banner year for the forex market. Be sure to sign up for our email updates, RSS feeds, Twitter, or check out our Facebook page by clicking on the buttons up top to stay in tune with the new developments cooking!