How to Achieve Currency Trading Success: Part 1
Currency trading success can be achieved by anyone, as everything about trading currencies can be specifically learned, by any trader wishing to put it in the time and effort to do so. Trading currencies successfully is a combination of two factors: Firstly, you need a successful trading method for long term currency trading success to predict market direction and these systems fall into two categories: 1. Fundamental analysis A currency trader who makes trades based upon fundamental analysis, will look at the supply and demand situation relevant to the particular currency studied, and try and predict the impact of such factors as: · The health of the economy
· Interest rates
· Balance of payments
· Employment
· Trade deficit
· Other factors In today’s markets with the all-fundamental information available in seconds anywhere in the world, fundamental news is quickly reflected in the price. Traders therefore, can have difficulty acting quickly enough to position themselves in the market in relation to breaking news. In light of this, more traders looking for currency trading success are using a technical approach to the markets. 2. Technical analysis Technical analysis is the study of a currency, based strictly on using only the price history of the currency. Technical analysis uses no information about the currencies supply and demand situation - it simply focuses on price action. The common belief is that the currency price reflects all the known information about the currency as it is immediately discounted in price action. Technical analysis however does something more - it indirectly studies human psychology. Since price patterns reflect shifts in human psychology, one can assume that certain patterns, cycles and trends, will repeat themselves again, as human nature has remained constant over time. Technical analysis takes into account both the fundamentals and the market participants psychology and this gives us a simple equation: All known fundamentals + human psychology = Price action The fundamentalist studies the cause of market movement, while the technician studies the effect. For currency trading success, you need to catch the longer-term trends that yield the big profits. The technical trader does not care how and why these trends develop; all they want to do is make money from them when they occur. Look at any currency price chart over time and you will see long-term trends and many of them last for years. The secret of currency trading success is using technical analysis to spot them. Long Term or Short Term Trading For long term currency-trading success, is it better to be a long term trader, rather than a short-term trader. While traders can, and do make money with short-term methods of trading, the fact is, currencies trend longer term and these are the trends that yield the biggest profits. The reason for this is obvious: Currencies reflect the underlying health of the economy. These cycles of expansion and contraction, tend to last for many months or even years and a long term position trader has huge profit potential, if they can lock into and hold these longer term trends. The choice between long term, and short term trading is subjective, but generally the longer-term price trends tend to be easier to predict, and offer better risk / reward, so a long-term approach is the one to focus on.
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