Forex trading can be incredibly intimidating at first glance. Just look at any graph – consisting of bars with protruding lines, they can look like hieroglyphs to the uninitiated. By sitting down with a seasoned trader, though, you can make sense of it all.
However, there is more to profitable Forex trading strategies and Forex trading techniques than being able to read a graph. Following the news is of limited help – it is accessible to everyone, so it is already baked into the price. Unless you’re an insider, you won’t know about Black Swan events either – even experienced investors are as surprised by these as you are.
How is it possible to outperform the market, then? Most tout a framework called technical analysis. It posits that past market behavior is a good indicator of future results. In this article, we’ll brief you on Forex tips, Forex technical analysis, Forex strategies, Forex analysis as well as Forex techniques that will get your trading efforts off to a great start.
Difference Between Forex Vs Stocks Vs Commodity Market:
Rookie traders often mistakenly assume that all markets are the same. They are mistaken – Forex exchanges differ considerably compared to those that deal in equities and commodities.
First, Forex trading markets are open 24 hours per day, five days a week. These hours stand in stark contrast to those kept by stock and commodity exchanges – often, they are open only eight hours per day. With the ability to trade around the clock, a position accidentally left open can end badly for an inexperienced trader.
Second, different things drive movements in Forex, stock, and commodity prices. Quarterly revenue reports and monthly economic indicators initiate significant moves in the value of shares. In commodities, supply and demand dictate movement in prices. In Forex markets, significant fluctuations in spot prices are driven mostly by changes in interest rates. On days when central banks announce rate changes, Forex traders can make (or lose) a lot of money.
Third, the Forex market is highly liquid. Every day, five trillion USD changes hands – compare that to equities markets, where merely 200 billion USD is transferred. This reality increases volatility in Forex markets, making them a challenging place to trade. So it because upmost important to drill down various parameters through Forex technical analysis, Forex strategies, Forex techniques as well as Forex tips when analyzing or before buying any position in Forex trading.
The importance of Technical Analysis in Forex Trading:
Most day traders are short-term investors. They set a position and quickly exit it, often within seconds. To an uneducated observer, it looks easy – however, profitable traders don’t make calls based on gut instinct. Instead, they apply a framework known as technical analysis. What is technical analysis? In short, it is grounded in three principles:
1. The market has incorporated all available information into the current price.
2. Prices move in predictable trends.
3. History repeats itself.
By applying best Forex technical analysis and strategies, you can look at a pairing and open a position that will be profitable more often than not. What essential Forex tips should you follow if you’re new to technical analysis?
First, make sure you’re looking at the right graphs. If you’re making quick, short-term trades, don’t make decisions based on daily or weekly charts. Instead, bring up ones that are broken down by the minute or hour.
Second, determine the support and resistance levels. Support levels are the floor where prices haven’t fallen below, while resistance is the ceiling they have failed to rise above. If prices are tracking close to an established resistance level over a few hours of forex trading, going long is likely a bad bet.
Third, pay attention to volume. Volume represents the actual amount of currency changing hands. The market’s volume at any given time can discount or strengthen trends. For instance, if volume is low, a sharp rise in prices should not be taken seriously. If it is high, however, it could be indicative of a real trend.
Catching on fast? MoneyTransferComparion’s technical analysis guide outlines additional tips and tricks that will have you Forex trading like a pro in no time.
Why do Forex forecasts get movements wrong so often?
If technical analysis is as rock-solid as its proponents claim, why do Forex forecasters get it wrong? Take Bloomberg’s 2015 forecast for example – one year later, results diverged drastically from the predictions of pundits. For example, the Mexican Peso (MXN) was expected to appreciate 10% – it fell almost 15%.
All markets, generally speaking, are unpredictable. We can’t state with exact certainty what a currency pairing is going to do. All it takes is an unexpected rise in interest rates, a natural disaster, or the sudden collapse of an industry to throw a monkey wrench into forecasts.
All we can do state the probability of a given outcome. When analysts make a forecast, it’s their opinion that a given result is likely. Assuming they are correct in their analysis, when you run a scenario x times, they’ll get it right more times than they get it wrong.
The best in the industry call market movements with 70%-80% accuracy. For every100 predictions they make, they get 20-30 calls wrong. And that’s not even considering statistical variance. If luck isn’t on their side, they may get 40 out every 100 calls wrong. On the other hand, they may appear godlike sometimes, nailing 90+ out of every 100 predictions made.
Play the Forex long term strategy game and you’ll prosper:
Forex trading is a game filled with ups and downs. If you don’t have a rock-solid system to follow, you’ll trade on emotion, and eventually, you’ll lose everything. By learning the fundamentals of technical analysis, you’ll build a foundation upon which you can create a successful trading career.
It is also advisable to grab as much as knowledge you can based on forex technical analysis, forex fundamental analysis along with various forex strategies and forex techniques. Before you buy any position, it is advised that for couple of months you do buy and sell on paper or any of the virtual trading software, once you get grip and confidence then it’s your time to start taking position in real money and in real world.