Many traders make the mistake of thinking that they can predict forex prices in advance. If you believe this, then you need the forex education enclosed in this article. Let's look at why you can not – but why it will not stop you from enjoying currency trading success.
If you think about it – it's obvious why you can not predict prices in advance, because if you do, you are hiring or guessing and that will not get you very far in life or forex trading. You will find out that your predictions are no more accurate than your horoscope.
There is a school of thought that because human nature is constant, then prices must move to a scientific theory – but they do not. Human nature is not predictable in absolute terms and if of course there were a scientific theory of market movement, we would all know the price in advance and there would be no market. Markets actually move because human nature is unpredictable.
So if you can not predict prices in advance then how can you win? The answer is to look for high odd chart formations and then confirm each and every trading signal with price momentum.
For example, let's say you see prices coming into a strong level of support on your forex chart and you want to execute a trading signal – rather than plunging straight into the market, you wait for a test back and the other way.
Essentially you are looking for price momentum to turn around and move away from the support level, and then you execute your trading signal. Now you will not be right at the bottom of the move however as you can not predict than anyway, it's no big deal but you will have the odds on your side and the chances that the trend will continue.
How do you know momentum has changed?
You need to get familiar with momentum oscillators. We do not have time to discuss them in full detail in this article (simply look at our other articles) but you can get a great trading edge by using them in your forex trading strategy.
Two of the best are the stochastic and relative strength index (RSI). There both visual set ups and a quick glance at either of them, will help you determine if price momentum is turning or not. There are of course lots of others but the above are two of the best.
Successful forex trading is all about getting the odds on your side. If you use momentum you will achieve this – you're not out for perfection with your market timing, you're looking to make money and that's it.
So make momentum oscillators and there application, part of your essential forex education and they will lead you to currency trading success.