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Jun 04, 2010, 10.49 AM IST
The financial markets and business in general have always been a fascinating topic. Free markets are what make us a democracy and let us strive to make money. In the simplest form business is just making something that someone else wants or needs.
There is one last indicator that might be of some help for those just learning to trade. By watching how the price moves traders can get an idea of where there might be support or resistance. Looking at forex charts any trader can clearly see at what price level the particular currency pair is having trouble getting above or below. When the price has held up before at a certain level there is a strong possibility it will continue to hold there. This is basic market psychology at work.
Many feel if the price has held at a certain level it will continue to bounce off that same price. The same is true when a price cannot get above a certain level. This is normally called the range that the price has been trading in. This range can be found in various different time frames, from many years to minutes. Depending on what time frame you decide to trade, make sure you look at the support and resistance levels. If the resistance to the upside breaks and a higher price is made, it could signal further appreciation. If the support is broken and the price makes a new low, depreciation of the currency is the likely outcome. The theory of higher highs and higher lows indicates a strong upward moving market. Lower lows and lower highs mean close any long position or add to your short position, because this market is moving lower.
All these price patterns can be seen on the charting software that every forex broker gives you when opening a demo or real account. The various forex broker reviews on the internet will give you an idea about who has the best software for charting and technical analysis. Make sure you like how the trading software and charts perform before making the initial deposit. Most of the brokers will also have third party vendors that will sell you better charting programs for a monthly fee. These brokers might also give you the software for free if your initial deposit meets a certain requirement.
If you are just starting to learn to trade the forex market make sure you read up on literature about all types of markets. The Foreign exchange markets will have an effect on the commodities markets and the equities markets. You should know how each market will affect the other and how they are correlated. This can help you decide if you have a bias towards buying or selling a particular currency. You must come up with a plan that you will follow. The plan can be as simple as looking at a specific countries economic environment and buying or selling the currency based on your theory.
Having a basic understanding of economic principals will help you trade the forex markets . Since the currency price is a direct reflection of the country’s economic strength the two go hand in hand. That is why it is also important to understand business, and the effect a businesses profit might have on the country’s Gross Domestic Product (GDP). The GDP will be a key reason why a currency might gain or lose strength throughout the year and over several years.
As a trader you cannot stop learning, the more knowledge you posses that better your chances are of making trading a full time profession. Even if your theories prove wrong and you end up losing money, you at least had a game plan. You can write down in a journal that this trade did not succeed and the reason behind why. This will allow you to at least gain knowledge of why the market reacted as it did. If the same situation arises again someday you will then not make the same mistake twice. In fact you might now be able to make money because you have an understanding of the relationships that exits in the market. The same is true if your theories are proven correct. Write them down and make sure you understand why you made a profit, so you can duplicate your trade again in the future.
May 21 2013, 13:56
- in Results Boardroom
May 21 2013, 11:05
- in MARKET OUTLOOK