Forex Trading & Price Factors

By: Sacha Tarkovsky

If you want to take advantage of currency price movements and predict where prices might go you need to know what moves prices and why they occur.

This may sound obvious but many traders simply don't know and lose.

Lets find out exactly what moves prices and why and how you can take advantage.

Understand the following equation

Supply and Demand Fundamentals + Trader Psychology = Price movement

Prices are not simply a tug of war between supply and demand. As humans we put a value on the market and this is the unpredictable part of the equation.

When considering trader psychology keep in mind that it is humans that determine the price of anything, based upon how they see the facts.

Why is this important?

It's important because its humans that drive prices, with the emotions of greed and fear to the fore. It is the human element that you need to consider when trading the markets.

So how do you do it?

The obvious answer in FOREX trading is to use a system based upon technical analysis, simply follow charts and let them tell you which way prices will go.

As with today's fundamentals are instantly discounted in the price the news and data wont help you - understanding trader psychology will.

Technical analysis acts as a way of studying the fundamentals, as it assumes that all the fundamentals are discounted by the market and will show up instantly in price action.

Charts do something much more - they show up the long term repetitiveness of human nature.

Unpredictable in the short term, but over the longer term certain reliable chart patterns can be spotted that are a reflection of repetitive human psychology.

Now consider this:

Each trillions of dollars are traded in the markets, by numerous participants and while in the short term these participants can be unpredictable, in the longer term human nature is constant and chart patterns repeat.

How to trade

When trading don't fall for the day trading story.

All short term moves are random and you can prove this by asking any day trader for a long term track record of REAL profits made in trading.

Ask for one and you won't get one.

Many new traders try and trade short term but as you can see above its why they lose.

You need to trade longer term and we would suggest using the weekly chart to spot the long term trend ( currency trends tend to last for months or even years) and then time your entry on the daily chart.

If you understand what we have just discussed you will see that a long term technical approach to trading is the best way to make long term profits from Forex trading.

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