This section takes a look at how new traders can best approach the markets without being overwhelmed. Being overwhelmed can be a destructive force and should be dealt with in such a way as allow a new trader to fit himself or herself into the market in a step-by-step and simplistically measured approach.
Ask yourself the right questions.
What time do you prefer to trade each day? How much time can you devote to trading while maintaining your trading as an enhancement rather than detraction from your family, lifestyle, job and your normal recreation time?
In order to assess what style of trading is best for each individual, first it’s necessary to assess our individual priorities in life. In addition we have to assess what our trading goals are and work together with both parts, finding a happy medium that won’t adversely affect either your everyday life or your trading.
A good yardstick to use in order to make this analysis is to understand what amount of spare time we have to dedicate to learning the Forex. Whether that is 7 hours per week or 21 hours per week will help you to also assess the style that would more suit you and not disturb other important areas of your life.
For most people the answer to this question might be simple, but it also might not necessarily be correct:
“Yes, I want to trade the Forex and let my money work for me while I sleep and do anything else but sit in front of my computer.”
Well, in time you can get there. However, practically speaking there is much to learn before we can get to that point. It takes time, a lot of time to understand how to read the charts accurately, to comprehend where to find important Resistance and Support points and to get a feel for the all–important Market Fundamentals.
Remember that our charts for the most part are lagging indicators. While chart history can be used to analyze currency pair behavior and relative degrees of probability, it can also be used to predict the immediate future when applied together with a relative understanding of Market Fundamentals – you don’t however, need to be an economist to understand and to follow the dynamic of economics that are constantly making the Forex market evolve and in all respect, printing the charts as they move.
Gaining a reasonable understanding of market fundamentals takes time. It is not like reading charts. Comprehending Market Fundamentals is a process that must be evolved with time. It’s not just learning the fundamentals that are important; it’s gaining the edge of ‘living in the market’ and being able to anticipate market movements, in many cases, in advance of them occurring.
The more we understand about the market- the more we decrease risk, increase confidence and conquer our fear.
In order to be an effective trader we want to learn as much about three aspects of market conditions as we possibly can:
- Reading charts
- Understanding market fundamentals
- Understanding our goals and the means by which we can achieve them
The above are not stated in order of magnitude. They are all equally important.
What all of this ties directly into is Risk Management- a.k.a. Risk Aversion. A novice to the the Forex will demo trade and will doubtlessly wind up with many, if not most of his/ her trades in the loss column.
The key is to thoroughly understand why each loss occurs.
As we progress along the learning curve we will find the answers. The major battle is that of time. Most of us want to learn how to get the pips now so we can start making real money. That way of thinking is
unrealistic. We must practice and we must study but we must do both of these at a time that is convenient to our family and to our work and to our regular everyday life.
The first thing we need to do is open up our monthly charts and find out what has been going on lately. This as well applies to more seasoned traders who can occasionally lose their sense of general direction.
What we want to find are the Prevailing Trends. Those are the trends that have been continuous for about the past 6 months.
Our initial aim is not necessarily to trade straight off the Longer Term charts because that takes a great deal of understanding and also relatively deep stops.
However, by grasping the overall prevailing long trend we can impress upon our mind the recent 6 or so months of relative strength and weakness of each currency and currency pair.
I always suggest to any new trader to focus on the majors first. Those are the currencies in which you will see the USD as the prime or the ‘cross’ currency and each symbol. The majors are in order of magnitude of market impact:
- USD/JPY and EUR/USD (The Two Main Divers),
- GBP/USD, USD/CHF, USD/CAD. (The Secondary Drivers)
- AUD/USD, NZD/USD, and (Tertiary drivers for the Asian-Oceana region)
The reason I advocate understanding the movements of the majors first is that these are the currencies by which all other currency pairs re-act. Missing from this list is the all-important CNY/USD (Chinese Yuan/US Dollar as yet, not handled by most retail brokers).
Learn the majors first, with focus on the EUR/USD and the USD/JPY.
Understanding the impact of the USD on all other currencies is the best place to start. A good place to begin is to concentrate most of your focus on these two pairs: EUR/USD and USD/JPY.
We work through this in a step by step manner. Is the USD strong or weak? If so, how long has it been strong or weak versus which of its major pairings? If it has been week for 6 months, let’s try to understand why. If/when we understand why we may be able to predict if this weakness will continue.
If it has been strong for 6 months, how did it get that way and, are there times when it strengthens and then weakens again? If so, how often does this occur and when and why does this occur?
We can take this same procedure down to the weekly time frames. Then we can take it down to the daily time frames.
This will unable us a point of departure for understanding the Forex markets. It will also give us an idea of when we need to study and how much time we can work our study around our daily life’s schedule. If we begin with a simple approach, step-by-step we can build and enormous understanding of what the market is all about, how we ourselves can fit into it and how to most practically can work it around our busy every day lives.
