Most new traders (and some who trade!) Do not understand the way Forex prices move and they lose. Not only must you understand the equation enclosed, you must understand its implications so you can build a Forex trading strategy for success …
The equation is this.
Fundamental Facts (Supply and Demand) + Investor Perception of Them = Price
Now it's a simple equation but means you CAN NOT base your Forex trading strategy on the following
– Complex mathematical theories
– Systems to predict prices in Advance
Most traders think that they can beat the market with a mathematical theory, as prices move to science and they also think you can predict in advance but it's obvious both assumptions are wrong – Why?
Because humans decide the price of any currency, so the facts are unimportant, it's how investors perceive them that counts.
Humans are not logical creatures, they can not be predicted and they do not conform to a scientific theory which then leads to the question how do you win?
The answer is you trade the odds and you trade the reality of price change.
Think of how a good poker player plays hands, he simply plays the odds. He knows he can not win every hand but if he keeps losses small and bets on high odds hands, can win long term.
While humans can not be predicted with total accuracy, human nature is constant and never changes. This shows up in high odds chart patterns, which occurs all the time. Your aim is to trade these high odds set ups, keep your losses small and run your profits.
When you trade in this way, you do not predict anything you simply follow the chart action and the best way to trade is to use a breakout strategy.
This is a simple, timeless way to make money and we will look at it in the next article in this series on the Forex price movement.