Using Foreign Exchange Currency Trading Basics

Foreign exchange currency trading methods can be greatly enhanced through fundamentals. And also more importantly through the understanding of how the market perceives uncertainty and risk, based on fundamentals. So instead of trying to assess the fundamental events and classify them as either bad or good for the market, the focus should be on uncertainty. Markets in general, do not like uncertainty, and solid rallies occur when there is the least amount of uncertainty possible. Foreign exchange currency trading methods can be based on this kind of analysis alone. Coupled with one more day-specific indicator. By looking at the economic calendar and the economic events that have fundamental significance, traders can clarify things to some extent. The more important an economic event is, the more uncertainty it carries. And the market in question, a national currency in the case of forex. Will weaken in the days leading up to the actual event day. So simply put, it’s all about selling on uncertainty and buying on absence of uncertainty. The actual economic events may be seen as either good or bad, or even mixed by the media. And that is not relevant to the forex trader. Good currency trading strategies can be based on this concept alone. So that the trader is always prepared by being on the side of the market which is more likely to prevail over the next few days.

Uncertainty in Foreign Exchange Currency Trading

Uncertainty in foreign exchange trading seems easy to define and detect. But in practice it may not be so easy. Traders need to stay focused on the news and events, and only watch out for those events that draw attention and concern. Market price movements prior to economic announcement days can be studied carefully through the observation of volatility and more. One such indicator is the movement of spreads of spot market forex brokers. When their spreads widen it signals higher uncertainty in the market. And this goes hand in hand with higher volatility and the expectation that any rallies will fizzle out. This means rallies on the single currency that carries the uncertainty, so the actual currency pair will trade either up or down as a result. So for example widened spreads on EURUSD signal uncertainty, but if the expected uncertain news has to do with the US dollar, then the US dollar will be the weak link. And the EURUSD pair will risk recovering from any declines. So traders will be looking to buy such declines and avoid going short the pair. Profitable currency trading strategies make use of these facts, and the key basic indicators are spread variation, volatility and breakouts that seem too good to resist. Breakouts in fact often seem good in such cases, but you have to realize that since uncertainty is higher than normal. And because the economic news is still due to be announced, such breakouts are bound to be false, deceptive and confusing. Even if the market finally breaks out in the same direction, for good, the premature breakouts are still a trap, due to high volatility. As the market will take out even large stop loss orders. Foreign exchange currency trading online for beginners fails to take these facts into account. And as result new traders stay too focused on chasing price. Which is not the best way to trade.

There is No Need to Reinvent the Wheel

There is no need to reinvent the wheel to make a good profitable trading strategy. The basics of the forex market provide enough clues. These clues allow you to call the market for about 50% – 60% of the time. And this is more than enough to stay profitable. So instead of analyzing many markets and have all these different foreign exchange currency symbols in your mind, you can focus on just one or two. But dig deeper by looking into spread variation, perception of market risk by brokers, volatility and price moves that seem to make no sense. The key point here is to know that you always want to sell uncertainty, and buy absence of uncertainty. The rest of the work is figuring out how these factors will end up impacting the actual currency pair you trade. Markets rally on certain outcomes, it doesn’t matter if a certain outcome is bad. They still rally on it, because uncertainty has been removed.