It's a very simple equation and we will look at it in more detail in this article for now here is the equation for forex trading success.
Fundamentals instantly Discounted (Supply and Demand) + Investor Psychology (view of the facts) = Price Movement.
The first point to keep firmly in mind is that you won't enjoy forex trading success if you try and trade the fundamentals.
Why?
Because news is instantly discounted and in our world of instant communications and its available in all corners of the globe at the click of a mouse. Furthermore, the facts and news is not important it's the way the participants view them.
We all have the same facts to look at but we draw our own conclusions based upon our emotions as well as our logic.
The news is stories and should and cannot be traded. Will Rogers once said "I only believe what I read in the papers" he was joking but compare this with the huge number of people who take a story on Bloomberg or Reuters as gospel.
The fact is the fundamentals are most bullish at market tops and most bearish at market bottoms. This is human psychology at work. If you want to enjoy forex trading success you need to be able to trade taking this into account.
A way you should not trade! - Is to try and predict.
Firstly, markets are NOT scientific because humans are not and they decide the price.
There are plenty of vendors selling systems that tell you that you can predict but you can't. If markets were scientific we would all know the price in advance and there would be no market.
Others traders don't use scientific methods but think they have to predict to win but another word for this is - guessing. If you guess you're hoping and the forex markets will kill you.
The way to trade is to act on the reality of price and trade on confirmation. If you want to win you shouldn't just assume a support level will hold - watch it hold and trade the reality.
The equation we are looking at in this article is really one that you can trade using forex charts.
Forex charts simply assume that as the fundamentals are instantly discounted in price action. All you need to do is follow the price action.
So with no study and trying to work out where the fundamentals may send prices, you simply just watch the reality i.e where they are and not question why.
Forex charts do something more though:
They show you how the participants perceive prices and they reflect the human psychology. While humans don't conform to scientific theory, human nature is constant and this shows up in repetitive price patterns.
It's a fact that prices spike away to far from the fundamentals due to investor psychology and these price spikes, driven by greed and fear, are easy to spot and tradable.
Trading the odds
When you are trading with forex charts, you are simply aiming to trade high odds scenario's.
Sure you will lose trades but if you play the odds correctly, you will win more than you lose and enjoy forex trading success.
The advantage of forex charts if used correctly is:
You don't guess, hope or predict you work on the assumption that the market price is always right and trade the reality. The forex chartist, doesn't care which way markets move or why, they just want to make profits when they do.
The equation we have looked at here is vital for any trader to learn and digest - if you do you will see the right way to trade currencies and enjoy forex trading success.
