Most traders who engage in currency trading have no idea how prices really move. They then base their forex trading strategy on incorrect logic and lose their money. To win in currency trading you must understand the following equation.
This is the formula for currency market movement:
Fundamentals (supply and demand) + Human Perception of Facts = Market Price
It is – but if you think about it you will come to some compelling conclusions and they are:
– Currency markets are impossible to predict
– Following news stories will not help you
– Technical analysis is not scientific
Let's examine these points in more detail.
Currency Markets are Impossible to Predict
This is obvious and the reason is, the price is made up of millions of individuals, all governed by emotions who do not think logically. You therefore can never predict in advance what they are going to do.
Following News Stories will not help you
We have better news sources than ever today but they will not help you win.
There stories and viewpoints and just reflect what the crowd thinks or has has thought and the crowd always losses.
Furthermore, these stories are immediately discounted and you have the additional problem that – we all see the facts though we were not logical animals so we all see them differently!
Technical Analysis is Not Scientific
This really leads on from predicting markets.
You can not as you never know what the vast mass of traders who contribute to the price is going to do. There is the view that human nature repeats and it does – but not to a scientific theory.
If markets were scientific we would all know the price in advance and there would be no market!
Those who trade thinking the above lose.
Well that sounds daunting – How do I make money trading forex?
THE GOOD NEWS IS:
You can calculate the odds in trading and while you will not win every trade just like the successful blackjack player if you know how to calculate the odds you will win more than you lose and can enjoy currency trading success over the long term.
So how do you calculate the odds?
The best way is to use forex charts and simply follow and act on the reality of price change.
With forex technical analysis, you simply assume all the fundamental news is reflected immediately in the price. It's a question of where humans as a mass move prices thats important and they all see the news differently.
Prices may not move scientifically but human nature is constant and they will always push prices too far to quickly up or down based on the emotions of greed and fear. These short term price spikes are easy to see on forex charts and you can trade them for profit.
You are not going to predict in advance, you are going to react to the reality of price change and go with it. If you look at any forex chart you will trends and you want to make money from them – you're not interested in why or how they develop – You just want to make money from them when they do.
Trade the Odds For Big Consistent Profits!
If you understand the equation weave you at the start of this essay, you will understand that trading is a game of odds – NOT assurances but that does not mean you can make a lot of money.
If you trade currency markets and use a simple technical forex trading system which simply reacts to price change, you can make a lot of money and enjoy currency trading success.