Learning how to trade on the foreign exchange does not have to be difficult but there are a few things that you need to know before you get started as a trader. You need to have a basic skill set as well as a working knowledge of terms and the mathematics and science that goes into predicting the market.
Almost all of the trading that happens on the foreign exchange is what is known as speculative. This means that it the majority of trades, approximately 95% of them, that consist of traders making trades based on predictions. The other five percent are large corporations and countries who are exchanging money made from industry in those currencies to their native currency.
Speculation and the Market
The fact that the market is speculative can be daunting if you do not know what you are doing. In fact, to many people it might be the same as just guessing randomly but there is actually quite a bit of mathematical analysis that goes into creating the strategies that all traders use when they are deciding how they want to trade on the market. Strategies involve a great deal of information and it takes serious planning to be able to use them properly.
Parts of a Foreign Exchange Strategy
One of the first pieces you will find in a foreign exchange strategy is the information necessary to formulate a plan. You will have information gathered from both fundamental and technical analysis. The next step is to evaluate this information. For most traders it needs to be almost instantaneous when you look at the data and then make up your mind as to what you want to do.
In order to obtain this particular skill look at the data over an extended period of time. There will be a lot of data to go through but if you match up the technical data with the fundamental data, you will be able to obtain some essential information. The first piece of information that you will learn is how long it takes for an event to have an effect on the market. For example, the foreign exchange responds to changes in the interest rate.
When the interest rate changes, how long does it take before the foreign exchange starts making waves? You want to know this information because this is what gives you time to set your orders. If all you are doing is attempting to respond to trends when they occur, you will find that you will not be able to respond in the same manner. You might not be able to take care of what you need to take care of in time.
As a result, you could lose out on trades that could make you considerable profit as the foreign exchange fluctuates approximately every five seconds. This is why it is important to have a solid grasp of what is going on and be able to quickly view information and then make a decision.
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