Sunday, 12 November 2017

6 Tips for Novice Forex Traders

An Educational Article

With the Brexit at the horizon and fast changing circumstances in the financial markets, it is important that you understand the Forex market, its market participants, its influences, its limitations and most important its risks.
You will find in this article 5 tips regarding different topics. These topics can be found in many study materials, books, courses or trainings etc. It is however advised to get a basic understanding of each of them and acquire your knowledge in a way which suits you best

Do Your Market Condition Analysis

1.  Learn and know how to do your Market Condition Analysis: this provides the trading conditions on any given day. Research your analysing tools very well.
All financial markets have different market conditions that develop based on who is trading in that financial market, why they are trading that instrument and their intent for hold time.
Often an algorithm or formula is written for a specific market condition and works fine as long as that market condition prevails, but once the market condition changes, then that automated trading system can fail spectacularly.

Know Who the Market Participants Are

2.  Learn the Market Participant Cycle: In order to understand which of the 6 market conditions is dominant at any time, traders must understand the Cycle of Market Participants.
There are 6 distinct groups with new groups slowly emerging as more and more of the financial markets are controlled by the professional side.
The main market participants in Forex are:  professionals, institutions, corporations, banks, sovereign nations, and Central Banks. The last one also called the Market Makers. Understanding the relationship between these groups helps traders understand why price is behaving the way it is.
Forex traders need to be aware that they are not trading with the other market participants that use Forex, for a variety of reasons, but are trading directly against their online broker.
Understanding how the different market participants are using Forex and their reaction to the economic and political factions can help the retail Forex trader to get an insight into the Forex market.
For example, you will notice occasionally strange moves coming back on specific times of the day. This is where Central Banks are testing the market. 

3.  Understand The Relationship Between the Stock Market and Forex

One financial market will impact all the others. Since the stock market is the centre of all the financial markets, NOT Forex, understanding the dynamics of the stock market is imperative. Otherwise the Forex retail trader is at risk of suddenly discovering their trading strategies fail for no apparent reason.
The Stock Market leads the economy and not the other way around. Very few know that a cycle exists between the stock market and the economy, but it is one of the reasons that the stock market has such an influence on other financial markets.
The Stock Market is also less risky due to the transparency that is required of all publicly traded stocks on the US public stock exchanges. You can find financial information and expectations for upcoming reporting periods, as well as the percentage of the shares held by institutions, all on the internet with a simple Google search, and for free.
Another point of transparency that the stock market features is Volume or Quantity indicators. In the stock market, we have access to the number of shares traded per day and we even have indicators that expose the large-lot activity in a trading day. WHO is trading, is the most important piece of information you can have as an individual trader or investor.

4.  News is Often Delayed for Retail Forex Traders.

Trading on news can work when the market conditions are favourable to delayed news activity, in other words rather quiet; however, when market conditions change rapidly during volatile times, this is unfavourable, losses can amount exponentially faster than most traders may be prepared for. The recent Brexit was a very good example.

5.  Know Your Trading Instruments

A key element to success in any financial market is understanding how your instruments works from the inside out: who you are trading with, what type of access you have to information, the influences of other markets, and the limitations inherent in the market.
Forex is not a stand-alone financial market. The biggest challenge with Forex is transparency for retail traders. Most individuals simply do not have access to the politics, financial policies, inside banking information, economic policies, etc. of all the countries whose currencies trade on Forex.

6.  A Golden Tip

Last but not least, this is a golden tip. Everyone is looking for an edge in trading, but be aware that there are limited options to gain an edge into the Forex Market. If you know your indicators, your technicals and fundamentals that you’re looking for, and if you do not see them instantly, they are not there… Trust yourself and what you see! Never think that they will get there if you do not see them straight away.

Reference: Investopedia

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