| Started learning how to trade Forex |
You may have noticed that despite this being the 4th article ive posted on the subject Ive titled this article “started learning how to trade forex”. The reason for that is that even though ive opened a demo account (and you probably have by now as well, heres a link to acm broker if you haven’t) and learnt the lingo and how to use my FX trading platform, the trades ive been doing have been a little random…. ok totally random (im still doing suspiciously well though). Trading randomly is a very good way to become very poor, very quickly. As a result the people that do this for a living use a lot of different factors to try and predict the future movement of the currency rate. These are split into two basic methods. Technical analysis Fundamental analysis Technical analysis is a technique that uses the past movements of the currency price to predict the future movement. The way that this is done is to look for patterns which have consistently occurred in the past. The best way to see these patterns is to look at charts as they provide a graphical representation of the history of the price Fundamental analysis is a technique that looks at the actual factors that affect the price. When you buy a particular currency, you are essentially buying into that country’s economy. So if the economy gets stronger the price of the currency will go up and if the economy gets weaker the price will go down. But of course, it’s not as simple as that. Peoples expectations of whether the price will go up or down has an effect on the price aswell.
So which is better, there are people that swear by one or the other but as with most things, both have their merits and im told that a successful trader uses both (of course he does, it just couldn’t be simple could it).
BTW if you’re wondering about the random strategy I was using, here it is. I noticed that at the micro level i.e. on a second to second basis the price was fairly random so with my $50,000 of fake demo account money I buy (or sell) $500,000 lots with a limit order no more than 3-4 pips profit. The random movements inevitably reach the limit level I’ve placed since it’s so close and I get a few hundred dollars profit. Now I get 3-4 trades in a day and so make about $700-1000 every day. There is a GIANT catch to this strategy. I might buy at the top of a peak and the rate drops and doesn’t come back up before a margin call so I also put a limit order going the other way at a point where my losses are $5000. This second trade becomes more profitable the worse my first trade gets, thus my loss only ever goes to $5000 and I can still wait (theoretically forever) for the rate to come back up or if I ever do decide to cut my losses I only lose $5000. Also it requires a big investment for relatively small gains. However if it does consistently provide profit then I think its worth it. This seems too easy (ive been doing it for 2 weeks and im just over 10,000 fake dollars in profit) so either it’s a popular strategy which has a cool name and doesn’t work as well as I think or there is an even bigger catch I don’t see yet as a new investor. There’s always the possibility that I’m a genius that’s invented a brand new super profitable strategy (unlikely). |