EFFECTIVE FOREX TRADING TECHNIQUES

A random sample of individual perceptions about forex trading yields interesting result. While some do not know anything about it, another section of society perceives if as internet fraud. Yet another segment of society perceives it as Internet fraud. Yet another segment of society considers it as gambling. Some others see it as a business.

 

In examining the issue, we want to establish the truth about forex in a factual and reasonable way. Forex trading is simply a technological extension of what bureau de change is analogous to the forex broker who buys currencies from customers, adds a commission to it and resells it to a buyer.

 

That commission is what forex brokers call their spread. Retail forex traders are currency speculators, similar to land speculators, who buy a currency in the expectation that it will appreciate in value with respect to another currency. They are analogues to the bureau de change’s customers.

 

Economic laws of demand and supply cause currency fluctuations. Just like the land speculator, the currency speculator must have a valid reason to speculate on the value of a currency. There must be something he or she knows, that the larger market spectrum have not yet realized or priced into the currency currency’s valuation.

 

The validity of that knowledge coupled with the level of market realization of that information creates the potential for profit or loss. A good example of this is Black Wednesday.

 

That day, billionaire forex speculator Goerge Soros and his economic team, spotted a fundamental weakness in the British Pound after the introduction of the Euro. The British Monetary Policy Committee was unwilling to make the necessary adjustments to reflect the new realities on ground with the emergence of the Euro. This created a vacuum or an opportunity for anyone who could spot it.

 

George Soros sold the pound massively in the billions Technical chart strategists, who did not see what Soro saw at the time, joined in the massive selling, knowing only that there must be a massive fundamental reason for the selling.

 

At the end of that day through the power of leverage or margin trading, Soros went home with $1bn.

 

Clearly, to success as a forex trader, a very high level of economic and financial education coupled with intelligent data processing power is required. This is necessary to be able to take fundamental trading decisions in a timely manner. Also, mental and emotional balance is critical to success as a disturbed mind will not focus properly to effectively process data into timely information.

 

Obviously, this type of education and power, a greater proportion of retail forex traders do not and may not be able to procure.

 

Their only hope therefore lies in monitoring the currency charts to locate times when it is evident from price movements, that fundamental buying or selling is taking place and aligning their speculative positions with the current market realities. There is, as a consequence of this methodology, a potential for error.

 

This is where the concept of a stop point comes in. In other words, the trader is saying “if I am wrong, stop me out at this price”.

 

We can see from the analysis that forex trading is a valid and legitimate business. The problem, however, is that retail forex brokers tout to the unsuspecting and informed public that forex trading is easy business, requiring minimal education when in actual fact it is not.

 

The odds are stacked against the trader – as in any startup business. If market ignorance as a result of poor education or undisciplined temperament does not get the trader, chances are that a “less than honest” broker will.

 

The trader therefore needs to find an edge or system, knowing that it is the business of the broker to make that edge blunt. So often times, profitable systems must be modified, when their average business, which must adapt to changing business conditions or die.

 

Gambling, as defined by Oxford, is “playing games of chance for money”. Forex trading, just like any business undertaking, will become gambling when there is no fundamental or technical reason supporting a trading decision.

 

Any business can be a gamble.  It all depends on whether the prosecutor of the business has been properly educated about the business and is in possession of information that the market has not yet been absorbed.

 

Any Forex trader that follows these guidelines will not gamble.

Comments

  1. Foreign Exchange Market has low transaction costs. Trading System

  2. Can it be that your server is infected with a virus – I get an Virus warning when I open your site with Firefox – Just for your Info.

  3. thanks mate corrected it, I guess I slipped

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