Today I want to write a
short post on how to invest in Forex. Foreign exchange market has been mostly
place for short term speculation. However, if you learn how to pick up Forex
pairs and buy them on the bottom and sell them at the top (and reverse there by
going short) you will not have to concentrate on jumping in and out of the
market on a daily basis, but sit through bigger market moves and enjoy bigger
profits with smaller efforts. I do day trading,
but I have said it a number of times that I am more of a swing trader, pattern
trader and a trend trader. I do not like micro analysis as much as I like macro
technical analysis. I do both daily, but I prefer seeing the big picture to
seeing micro picture.
If you want to try trading Forex, futures, indexes and stocks I recommend eToro.
If you want to try trading Forex, futures, indexes and stocks I recommend eToro.
Disclaimer: All trading involves risk. Only risk
capital you’re prepared to lose.
Past performance is not an
indication of future results. This
content is for educational purposes
only and is not investment advice.
It is advantageous from both
psychological perspective (does put so much stress and trying to figure entry
and exit points on a daily basis) and from time perspective (you can take a few
hours during a weekend and form the big picture as opposed to sitting hours
trying to find good day trades). The
good news is that you do not have to know much about fundamentals of the game.
Surely, you will need a bit, but you will not have to do interpretation of the
fundamentals but simply follow the market and let the market interpret any
fundamental data for you. You just have to be aware of those key fundamental
points that make Forex market tick. Well, I should say that you will mostly
have to be aware of one thing: interest rate policy. Central bank policies
drive currency markets from fundamental point of view and other fundamental
data has to be interpreted from the perspective of how it influences interest
rate decisions in the future.
Quite often major reversals
happen around these kinds of decisions. Of course, not always! We do have
continuations of trends if meeting of central banks’ policy makers do not
change their statements. If a situation is not clear (let’s say with both EU
and Great Britain central banks) a particular pair will stay in a well defined
range till advantage (or disadvantage) from one side starts appearing. The pair
then goes out of its’ range and one has possibility to keep his position for a
longer period of time.
From a technical point of
view you have to see some accumulation (demand) or distribution (supply) and
some reversal patterns before you actually take a position in an upcoming swing
(or trend). I talked on these two aspects in my two previous posts: Best
forex trading system and trading
supply and demand. You want to see institutional buyers coming in before
you start buying and institutional sellers to come in before you start selling.
Combination of the two serves as the best means of longer term profitable Forex
investment.
We can look at eur/aud pair
to see how this works. From the 7th of June it was in a downtrend.
Any rise in price was met with hard selling and prices continued falling. Then somewhere
around 22nd of July serious buyers started coming in. However,
selling momentum was very strong and early bulls were overcome by inert bears.
Prices continued falling till the 2nd of August when the bottom was
hit. That’s where bulls became really aggressive. On the 7th of
August central bank of Australia issued their interest rate decision. There was
a sell off initially, but bulls again stepped in and price reversed its’
course.
Before I jump into any trade
I want to see either accumulation or distribution already taking place.
Accumulation before I start buying and distribution before I start selling. And
do believe trading and even investing should be done this way. If you think
that you can buy or sell any security just because you feel bullish or bearish
and are ready to wait any time for the security to confirm your expectations
you can destroy your account very fast. If you trade using leverage that is
definitely going to happen sooner rather than later. You can trade this way
only if you are 100 percent right all of the time. But nobody is right one
hundred percent all the time.
Therefore, I consider it is
best to wait and see when big buyers start coming in after price has been
falling for some time and only then start trading from the long side. The same
is true about going short. I know that Warren Buffet, Jim Rogers and George
Soros can trade and invest differently, but do not forget that Warren Buffet
buys good companies (not just some shares) and he can sleep well even if the
price of the shares falls dramatically, because he gets nice cash flows those
companies generate. You cannot afford that, because you do not own those
companies.
I know that Jim Rogers and
George Soros do take losses from time to time too. Why should you freeze your
capital by buying when no buyers are in sight? Start buying when momentum kicks
in. If we talk about stocks you should also wait for earnings report and if you
trade currencies you will find good opportunities to enter trades around
central bank decision releases.
This is what happened with
eur/aud pair. The pair reversed at support after seeing a lot of buyers coming
in and after the bank announced its’ rate decision.
When you see price start
jumping after a prolonged move upwards or downwards do not be surprised. Bull
and bear powers even up. When you see this get ready. Mark support and resistance levels
which should be places where strong momentum starts kicking in. When the area
is hit enter your trade. Then, if you are right and the market goes in the
direction open more trades. When you start seeing momentum drop start gradually
closing your trades. Then wait for a reversal and do the same.
If you liked the post I
would also be happy if you gave a plus on Google+, tweeted, liked it on
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Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.