What the forex market does is tease. It’s rules due to its simplicity will seduce you. You can make money on the internet picking which direction the dollar, any dollar or currency is headed. One small movement, up or down, if you choose right, can make you money. Heck, I can sit at my computer for an hour a day and make hundreds.
So Is Forex Trading For You?
We all know and heard about the constant right brain versus the left brain thinking, when we come up with a decision. While one side of the brain can be stubborn and creative, the other side of the brain is cold, calculating and mathematical. The creative side is detail orientated, wanders and is inquisitive. This allows you to effectively: draw, paint, write and see the world in abstract. The mathematical, cunning side of your brain is pure dark logic, much like a calculator. Most when young, judge their future occupation on which side of their brain is more dominant. Those who are creative become athletes, authors, police detectives, architects etc., while the mathematical types become computer programmers, plumbers, accountants or engineers. These are occupations where mistakes are not allowed. So you may be wondering what the heck does this have to with forex trading? Well, forex trading may rely more on the precise mathematical mind. So it’s up to you to decide which side of your brain is more dominant and which profile you fit.
So What Is This Forex Market
The forex or the foreign exchange is the largest publicly traded market in the world, a market that operates on a 24 hour clock. Currencies from two different countries, say the US dollar and the Japanese Yen, are aligned and placed against each other. Their daily, weekly or monthly performance as a country and economy, dictates their movement, whether it be up, down or sideways.
For example, you live in the US and are planning a holiday to Japan. You are interested in converting $5000 of US funds into Japanese Yen(USD/JPY). So you go to your bank and they will give you the current exchange rate, which may be something like:
One US Dollar, $1.00USD is worth 110.5Yen.
The $5000USD based on their current exchange rate is worth 552,500 Japanese Yen ($5000 X 110.5 = 552,500).
If you happen go back to the bank, say a week later… you may get a rate of 120.5 Japanese Yen to one US dollar.
The fluctuation from 120.5 to 110.5 is where the forex speculator makes or loses his living. The exchange rate could of very easily have dropped to 105.5 the following week instead of risen to 120.5.
So why and what factors causes the two currencies to fluctuate? Each individual countries currency rise or fall is dictated and influenced primarily by their countries economic performance. The forex trader makes money by speculating on which direction a particular currency will go for that day, week or month. If you happen to choose the wrong direction, it’s possible you can lose your entire account balance. So how do you decide?
Fundamental And Technical Based Forex Market Trading
Now go back to your brain thinking in two different patterns, creative and analytical. There are also two distinct indicators in forex currency trading systems. Fundamental and technical. Fundamental trading… is where the forex trader thinks a particular currency will rise or fall based on the economic forecasts and reports released by a certain country. As an example, if Canada releases its monthly employment report and the unemployment figures are significantly lower than the previous month, (meaning more people are employed), that is a positive report for the economy and the Canadian dollar ‘should’ gain on the other major currencies as a result. If the unemployment report happens to be higher (more people are not working), the CAD$s strength may fall against the other major currencies. There are numerous types of economic and commodity based reports released by each country on a weekly, quarterly and annual basis. Other reports may be: oil futures prices, national car sales, housing starts, import and exports etc. Every single report represents a snapshot on how the economy in that particular country is performing during that period of time. Every single fundamental report that is released influences how that countries currency will react. Will it gain or lose strength or have no effect at all.
Technical trading the forex on the other hand, involves the precise study of charts and the patterns and the movements the charts take. Although fundamental analysis is always taken into account, most of the trading decisions are based primarily on the behavior of a certain currency pair and why it moves in a certain pattern on a chart. Like there are numerous fundamental economic reports, there are dozens upon dozens of analysis based on indicators and studies based on why a certain currency pair moves up, down or sideways. Each technical study has their own elemental structure and mathematical equations on why their particular indicator predicts where and why a currency pair is moving in a certain direction. Some of them work, the majority don’t, some may work in the short term while others are just too complicated to understand.
Forex Currency Trading Systems
There are a lot of trading systems based on the forex market. This is practically an industry within itself. There are numerous applications, ebooks, programs, systems, seminars based on “The Best Forex Currency Trading Systems and Strategies”. Like the various mathematicians who has devised various formulas and indicators on which way or direction a currency pair is going to move, many creative traders has also developed their own market based on forex currency trading systems. Most of these programs and trading systems answer some but not all of the following questions:
– How Large Should My Forex Account Be?
– What Broker Should I Open My Forex Account With?
– What Type (Mini or Full) Of Forex Account Should I Open?
– When Are The Best Times To Trade The Forex?
– What Type Of Charts Should I Be Using?
– Which Currency Pairs Should I Be Trading?
– When Should I Enter A Trade?
– When Should I Exit A Trade?
– How Much Of My Account Should I Be Trading At One Time?
– Which Indicators, Fundamentals and Studies Should I Be Using?
There is a myriad of options. It is not a get rich quick ‘plug and play’ method of making cash, as it is paved out to be. It takes years of study to correct and refine your trading style. It is not for everyone. Not for the weak of heart or for the impatient.