The Truth About Currency Trading
Published by Jay Davies in Trading Articles
When you first hear the words "currency trading" or "Forex trading" what comes to your mind? You wouldn't be alone if you thought that it was too complex a market, and that you would need to be a mathematical wiz or university graduate with a PhD to comprehend it. There are many individuals around the world that play on those commonly held beliefs in order to charge thousands of dollars to teach others how to trade, and they want you to think that only a select few have access to the right information.
What is the truth though about currency trading? Is it too complex for everyday people like you and I, or can we learn to trade the market successfully without breaking the bank?
The truth of the matter, is that only very basic subtraction and addition calculations are needed to workout entry and exit points in the market. The identification of key areas where you make these calculations is not a complicated process either. We could liken Forex trading to a transport network with major highways and traffic lights. As you approach the intersection of a highway and the lights are red, you know that you should stop and wait for a signal to proceed. If the lights are green, you know that it's safe to go.
To demonstrate this analogy, have a look at the daily chart of the EURAUD currency pair below. Here we are using a candlestick chart with each candle representing one 24 hour period in the market. We could liken these daily price movements to traffic. In the Forex market, price traffic will often react around key levels or major highways if you like. When looking at this chart, notice how price reacted a number of times around the key level.
The first step of any currency trader that has received the right education, is to look for these key levels on pairs that they are trading. Once they have identified and marked the correct levels on their charts, the next step is to look for a trade entry signal around these levels, much like a green signal on a set of traffic lights, that will indicate to them when they can proceed to enter the market. After a trade has been placed in the market, the process of looking for an exit point is also a very simple procedure. In the chart below, we have highlighted an example of an entry signal that would of given a trader the green light to enter the market.
So, is currency trading only for someone who is a mathematical wiz or university graduate? Absolutely not! If you can do basic calculations and identify and follow simple signals, like those on a set of traffic lights, then you can trade in the foreign exchange market. Of course, just as learning to drive and understand the road rules takes time, so too, currency trading will take time and effort. After you have learnt the correct process though, it will become second nature to you.
If you would like to learn how to trade the right way in the foreign exchange market, then we would love to help you.