Technical analysis accounts for the numerical probabilities, patterns, and forecasts involved in forex trade. It is important to note, however, that forex trading involves more than just figures and numbers. All the factors that affect world markets and commodity prices are pretty much the same factors that affect currency exchange. Simply put, factors aside from historical numerical data also affect the forex market. For a more comprehensive view of the entire forex trading situation, it is therefore important to take these non-numerical factors into consideration,. That’s where Fundamental Analysis comes in.
Fundamental analysis is involved with studying current economic situations and interpreting how these would affect the forex trade. Fundamental analysis covers a lot of ground, and often, the situations it takes into consideration cannot be simply summarized in a short list. Throughout the years, however, a few recurring factors seem to have the biggest impact on forex trade, making them important things to watch out for when joining the trade.
Political Stability
Political unrest often translates to a weaker currency. Similarly, government systems with increased popularity ratings usually lead to the strengthening of a country’s currency. Be on the lookout for any political issues on the country whose currency you are using for trade.
Another noteworthy fact about the effects of politics on forex is that elections also tend to shake the market prices around a bit. Overall, political stability is not a bull’s eye way of forecasting forex prices, but if you are keen enough to observe, you could see some patterns forming, which might be of help in the long run.
Interest Rates
Higher interest rates mean a stronger currency. That is because higher interest rates are generally attractive to investors, as these would mean higher returns for them.
Higher interest rates could also come from an increase in GDP, or Gross Domestic Product. GDP is also a good factor to look out for, as it often precedes interest rates, which means you have the chance to make decisions earlier on.
Employment and Poverty rates
Low employment and high poverty rates mean that the people have a smaller purchasing power. Smaller purchasing power also translates into lagging economic activity. To compensate for this, interest rates have to go down – consequently leading to a weaker currency.
Fundamental analysis is able to tell and view forex trading in many angles, however, it does not truly form the whole picture. To get the entire picture at every angle, it is best to use both fundamental and technical analysis methods.
Tuesday, December 9, 2008
How to Lose All in Forex Trading
Why is it that 90% of all forex traders end up losing every day? Considering the number of newcomers into the trade, a constant 10% rate of success must also be, in actual number, leading to more people being successful in forex trade. Adversely, this also means that people who lose also increase in number – even much more than the increase being experienced by the winners. What is the deal with the increasing number of people who keep losing in forex trade, and what are they doing wrong?
Forex trade losers all tend to subject themselves to practices that are complete no-no’s in trading. However, this same group of people never seem to learn from their mistakes, and just keep on doing what they they do best: losing. It shouldn’t seem much of surprise if in the long run, everything they have invested becomes a part of some disappearing act. Following are some of the common practices of traders that lead them to lose everything they have invested in forex trading.
Not Following the Game Plan
One of the most important things to take note in forex trading is that success is more likely to happen if a sound trade plan is formulated and followed properly. Like most plans, execution ends up becoming much more difficult to do, as compared to the planning process, itself. To put it quite simply, people lose just because they fail to follow their own brilliant plans.
Nonexistent Money Management System
Money management in forex trading truly is a dull subject. It is, however, entirely necessary to follow if you have forex trading success in mind. Nonexistent money management system refers to the simple absence of money management, or the noncompliance of present money management rules: both of which ultimately lead to losses in the forex market.
It is important to follow some sort of money management system in order to be profitable despite losses. Those who fail to follow a money management system will eventually end up losing everything they have investment in the long run. Unless, of course, they are particularly lucky people.
Turn Forex into a Soap Opera
You know how soap operas tend to become too emotional most of the time? Many traders often commit the soap opera mistake by becoming too emotional with their trading choices. With a some news here and a couple of rumors there, many traders fall prey to their anxiety by pulling out of trades too soon, or getting into ones that are sure to end up in losses. Keep your emotions in check, and you’ll be surprised at just how more disposed you are to deciding wisely.
Forex trade losers all tend to subject themselves to practices that are complete no-no’s in trading. However, this same group of people never seem to learn from their mistakes, and just keep on doing what they they do best: losing. It shouldn’t seem much of surprise if in the long run, everything they have invested becomes a part of some disappearing act. Following are some of the common practices of traders that lead them to lose everything they have invested in forex trading.
Not Following the Game Plan
One of the most important things to take note in forex trading is that success is more likely to happen if a sound trade plan is formulated and followed properly. Like most plans, execution ends up becoming much more difficult to do, as compared to the planning process, itself. To put it quite simply, people lose just because they fail to follow their own brilliant plans.
Nonexistent Money Management System
Money management in forex trading truly is a dull subject. It is, however, entirely necessary to follow if you have forex trading success in mind. Nonexistent money management system refers to the simple absence of money management, or the noncompliance of present money management rules: both of which ultimately lead to losses in the forex market.
It is important to follow some sort of money management system in order to be profitable despite losses. Those who fail to follow a money management system will eventually end up losing everything they have investment in the long run. Unless, of course, they are particularly lucky people.
Turn Forex into a Soap Opera
You know how soap operas tend to become too emotional most of the time? Many traders often commit the soap opera mistake by becoming too emotional with their trading choices. With a some news here and a couple of rumors there, many traders fall prey to their anxiety by pulling out of trades too soon, or getting into ones that are sure to end up in losses. Keep your emotions in check, and you’ll be surprised at just how more disposed you are to deciding wisely.
Forex Trader Traits for the Win
Just as there are some clothes tailored to fit a person perfectly, are there people made specifically for a job. Forex trading is not an exception to this rule. In the game that is currency trading, very few end up winners, and it’s not because they have extremely good luck. Maybe a bit of luck, yes, but mostly, forex winners share common traits that make them almost invincible to the roller coaster ride that is forex trading.
Objectivity is the Best Policy
Great success comes to those who are objective in making forex trade choices. There is a reason why forex tools, such as forecast charts and tables, exist – and that is to help traders make sound decisions. As with other forms of trading, forex trading often leaves traders anxious, nauseated, and scared. These emotions, when not kept in check, keep the wise suggestions being whispered by your inner forex pro trader from being heard.
If you are prone to anxiety attacks when making forex decisions, find some effective means of relaxation. Always remember that your tools and your intelligence are enough to make you successful in forex trading. The last thing you need is for these ingredients to be clouded and rendered useless by mere emotions. Learn to focus more on the facts you have been given, instead of that nagging negativity at the back of your head.
Balancing Act
Successful forex traders know how to balance their act pretty well. That is, balance in terms of fear and greed. These two emotions are often the biggest reasons why many forex traders end up losing, instead of winning. Fear in traders often lead to premature trade exits, when waiting it out just a bit more (as based on statistical data) would have led to higher gains. Greed, on the other hand, often make traders jump into trades too fast, which has a high probability of ending up in disappointment if losses instead of personally forecasted gains happen.
Good traders know how to balance these two traits well. By balancing these two traits, along with objectivity, it becomes easier to make the choices that are most likely to lead to the maximum amount of gains.
Trained in the Art of Forex Trade
Practice makes perfect. And although forex trading is a difficult trade to perfect, a little training ought to bring in a substantial amount of success. If you are a forex newbie, demo forex trades are the best way to get some practice. Read up and be informed as to how to formulate trading plans, and use these plans on your mock trade sessions. If something goes wrong, use it to your advantage by keeping in mind not to repeat whatever it is that made things go wrong. At the end of the day, evaluate yourself: where did you go right, and what did you do wrong? These will help you get prepared for the real deal of forex trading.
Objectivity is the Best Policy
Great success comes to those who are objective in making forex trade choices. There is a reason why forex tools, such as forecast charts and tables, exist – and that is to help traders make sound decisions. As with other forms of trading, forex trading often leaves traders anxious, nauseated, and scared. These emotions, when not kept in check, keep the wise suggestions being whispered by your inner forex pro trader from being heard.
If you are prone to anxiety attacks when making forex decisions, find some effective means of relaxation. Always remember that your tools and your intelligence are enough to make you successful in forex trading. The last thing you need is for these ingredients to be clouded and rendered useless by mere emotions. Learn to focus more on the facts you have been given, instead of that nagging negativity at the back of your head.
Balancing Act
Successful forex traders know how to balance their act pretty well. That is, balance in terms of fear and greed. These two emotions are often the biggest reasons why many forex traders end up losing, instead of winning. Fear in traders often lead to premature trade exits, when waiting it out just a bit more (as based on statistical data) would have led to higher gains. Greed, on the other hand, often make traders jump into trades too fast, which has a high probability of ending up in disappointment if losses instead of personally forecasted gains happen.
Good traders know how to balance these two traits well. By balancing these two traits, along with objectivity, it becomes easier to make the choices that are most likely to lead to the maximum amount of gains.
Trained in the Art of Forex Trade
Practice makes perfect. And although forex trading is a difficult trade to perfect, a little training ought to bring in a substantial amount of success. If you are a forex newbie, demo forex trades are the best way to get some practice. Read up and be informed as to how to formulate trading plans, and use these plans on your mock trade sessions. If something goes wrong, use it to your advantage by keeping in mind not to repeat whatever it is that made things go wrong. At the end of the day, evaluate yourself: where did you go right, and what did you do wrong? These will help you get prepared for the real deal of forex trading.
Forex Forecast Tools: Moving Averages
Forex trading is a trade that requires not only instincts, albeit good instincts proving to be extremely beneficial in the long run, but also a bit of smarts. For those who are afraid of math, trading currencies could either make or break you in that aspect. Math is an especially useful tool in forex trade, and although programs used to help predict future market prices and establish trade patterns already exist, a basic background on the principles underlying these programs is vital to forex trade success.
One of the easiest tools available for forex trade is based on Moving Averages. Moving average based calculations are often used by technical market analysts in predicting market prices due to the ease it brings when it comes to spotting trends in more volatile markets. Understanding moving average based calculations may prove to be extremely helpful in the long run, seeing as many other forms of market forecasting are based on this principle. Simply think of moving averages as simple arithmetic calculations, without which basic algebra and complex differential equations will fail to make any sense at all.
Types of Moving Averages
Market forecast computer applications based on moving averages come in many interfaces and names. However, all of them are either simple moving averages, or exponential moving averages. These are the most basic types of moving averages, and most moving average based applications simply come from either of these two.
Simple Moving Average
A simple moving average forecasts prices for a certain day by calculating the average of values during a certain amount of time immediately past. For example, on a simple, week-long moving average, prices can be predicted by simply adding all values for the past week, and dividing the sum by 7. Concretely, if prices for a week were $4, $3, $7, $8, $8, $9, and $7, consecutively, a forecast value for the day immediately following the last figure ($7) can be established at $6.57 (the average of all given values for the week).
Exponential Moving Average
Exponential Moving Averages come in two different forms: percent-based and point-based. Either way, these calculations employ a certain equation that will require the help of computer programs for accuracy, especially when longer periods of time are involved. Compared to simple moving averages, exponential moving averages tend to provide more precise immediate forecasts.
Often, traders use a combination of these types of moving averages to aid them. Exponential moving averages are great for predicting immediate changes in the market pattern, whereas simple moving averages tend to be more accurate in the long-term. A combination of these two types of moving averages ensure both short and long-term success in forex trading.
One of the easiest tools available for forex trade is based on Moving Averages. Moving average based calculations are often used by technical market analysts in predicting market prices due to the ease it brings when it comes to spotting trends in more volatile markets. Understanding moving average based calculations may prove to be extremely helpful in the long run, seeing as many other forms of market forecasting are based on this principle. Simply think of moving averages as simple arithmetic calculations, without which basic algebra and complex differential equations will fail to make any sense at all.
Types of Moving Averages
Market forecast computer applications based on moving averages come in many interfaces and names. However, all of them are either simple moving averages, or exponential moving averages. These are the most basic types of moving averages, and most moving average based applications simply come from either of these two.
Simple Moving Average
A simple moving average forecasts prices for a certain day by calculating the average of values during a certain amount of time immediately past. For example, on a simple, week-long moving average, prices can be predicted by simply adding all values for the past week, and dividing the sum by 7. Concretely, if prices for a week were $4, $3, $7, $8, $8, $9, and $7, consecutively, a forecast value for the day immediately following the last figure ($7) can be established at $6.57 (the average of all given values for the week).
Exponential Moving Average
Exponential Moving Averages come in two different forms: percent-based and point-based. Either way, these calculations employ a certain equation that will require the help of computer programs for accuracy, especially when longer periods of time are involved. Compared to simple moving averages, exponential moving averages tend to provide more precise immediate forecasts.
Often, traders use a combination of these types of moving averages to aid them. Exponential moving averages are great for predicting immediate changes in the market pattern, whereas simple moving averages tend to be more accurate in the long-term. A combination of these two types of moving averages ensure both short and long-term success in forex trading.
Forecasting in Forex: An Introduction to Technical Analysis
Success in Forex trading takes more than just a trip to a fortuneteller. A similar concept of foreseeing the future, however, might do the trick. Quite a number of forecasting methods are already established, and for this article, great focus is given on an introduction to the Technical Analysis method for forecasting Forex trading patterns.
Technical Analysis is a method that can be used to forecast market price changes and fluctuations. Like fortunetellers, technical analysis uses certain tools to predict patterns in market prices. However, unlike fortunetelling, which uses tarot cards and crystal balls to help predict the future, technical analysis uses charts, tables, and often, statistical mathematics, to predict the future of Forex trading.
Underlying Principle of Technical Analysis
Technical Analysis simply relies on past and present numbers and figures. It takes into complete account the numerical pattern of the market for as far back as possible. And since it only considers numbers as the primary source for market price forecasting, other probable causes for market price changes, such as inflation, socio-political factors, and the like, are simply disregarded
Advantages of Technical Analysis
Technical Analysis is a purely objective tool, thus making it a pretty stable means of forecasting market trends. Often, this objectivity makes it an extremely accurate tool for success in the Forex trade. It is good to take note, however, that technical analysis forecasts tend to be more accurate for the most immediate future. This means that if you want to take advantage of some forecasted price changes, you should act on it right away.
Disadvantages of Technical Analysis
Technical Analysis has quite a number of disadvantages, some of which many forex traders consider as insignificant, but are nonetheless true. These disadvantages are mainly rooted in the fact that technical analysis focuses only on numbers, specifically prices, to predict future market patterns. However, many factors other than previous market trends affect future market prices. In fact, anything that can affect the prices of other trades and commodities can also affect forex trade. These factors include, but are not limited to: inflation, economic and political stabilities of key countries, interest rates, trade psychology, and supply-demand situations. Technical analysis disregards these factors completely, which could render it inaccurate in situations wherein these factors could have a great impact on forex trading.
Technical Analysis method of forecasting market prices has its own advantages and disadvantages. However, it is up to you to weigh these advantages and disadvantages, and see if technical analysis is a tool you can use to help you in the forex trade.
Technical Analysis is a method that can be used to forecast market price changes and fluctuations. Like fortunetellers, technical analysis uses certain tools to predict patterns in market prices. However, unlike fortunetelling, which uses tarot cards and crystal balls to help predict the future, technical analysis uses charts, tables, and often, statistical mathematics, to predict the future of Forex trading.
Underlying Principle of Technical Analysis
Technical Analysis simply relies on past and present numbers and figures. It takes into complete account the numerical pattern of the market for as far back as possible. And since it only considers numbers as the primary source for market price forecasting, other probable causes for market price changes, such as inflation, socio-political factors, and the like, are simply disregarded
Advantages of Technical Analysis
Technical Analysis is a purely objective tool, thus making it a pretty stable means of forecasting market trends. Often, this objectivity makes it an extremely accurate tool for success in the Forex trade. It is good to take note, however, that technical analysis forecasts tend to be more accurate for the most immediate future. This means that if you want to take advantage of some forecasted price changes, you should act on it right away.
Disadvantages of Technical Analysis
Technical Analysis has quite a number of disadvantages, some of which many forex traders consider as insignificant, but are nonetheless true. These disadvantages are mainly rooted in the fact that technical analysis focuses only on numbers, specifically prices, to predict future market patterns. However, many factors other than previous market trends affect future market prices. In fact, anything that can affect the prices of other trades and commodities can also affect forex trade. These factors include, but are not limited to: inflation, economic and political stabilities of key countries, interest rates, trade psychology, and supply-demand situations. Technical analysis disregards these factors completely, which could render it inaccurate in situations wherein these factors could have a great impact on forex trading.
Technical Analysis method of forecasting market prices has its own advantages and disadvantages. However, it is up to you to weigh these advantages and disadvantages, and see if technical analysis is a tool you can use to help you in the forex trade.
Subscribe to:
Posts (Atom)