What Every Forex Trader Should Know

Every forex trader should know about market risk and how to be prepared for it. Because technical analysis does fail and will fail from time to time.

Some Key Factors Impacting Markets that Every Forex Trader Should Know

Technical analysis is generic, and is based on chart analysis and various patterns, which usually but not always, work. Every forex trader should know that technical forex signals can be totally overpowered by factors such as central bank interventions and geopolitical events. The US dollar for example can sometimes defy all technical analysis, all bearish type of signals, and rally. This is because the US dollar is not always a technical market. It is not even always a fundamentals market. It does trade as a technical and fundamental market for most of the time, but it can turn into a highly sought-after safe haven market when global unrest is high. The entire global forex converter mechanism can be affected by sudden geopolitical events, though it happens in one currency at a time. It will either be the US dollar, or some other particular currency being affected. The US dollar is most noticeably seen being affected because it has many crosses that are popular among traders, such as EURUSD and GBPUSD. But other countries’ currencies can also be affected in other ways, not in the sense of being used as safe haven currencies. Sudden central bank decisions can also make currencies defy all technical analysis. Good fundamental analysis however, if done beforehand, can predict these central bank decisions long before they happen.

What Else Can Go Wrong

Currency trading can be more difficult when a specific currency pair moves on speculation, days prior to some important economic announcement regarding either one of the two economies involved. Such moves are simply fuelled by speculation and may seem illogical and nonsensical. But regardless if it makes sense or not, when a market moves, traders watch support and resistance levels. A good forex trader does not ask too many questions, they just trade based on technical analysis, and on some broader fundamental opinion. If markets made perfect logic sense, they would be perfectly efficient and it would very hard for traders to make a profit. Another thing that can go wrong, is a firm belief that the crowd must be wrong. This is not always the case! The crowd can also be right. Any firm belief, in any indicator is actually a wrong belief. As no indicator should be used in a religiously firm way. Successful trading is about dealing with elusive goals, such as trying to catch a rainbow. When you get too close it’s all gone. But if you keep the right distance you can see it. That’s why all these indicators become useless when you try to make the most out of them, so keep the right balance.