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If you allow it, currency trading can be simple. A new trader complicates things more than is essential and in the end, he loses his confidence to trade and makes bad decisions. This leads, and rightly, to the feeling that he does not know anything. As a result, he is on the lookout for tips to trade. Though a beginner will find difficulty in trading, he must realize that the people from whom he is asking for tips learnt through their mistakes and converted their bad decisions to knowledge.
Technical and Fundamental Analysis
Learning Technical and fundamental analysis is the first step that you must take to learn currency trading. It is this mathematical prediction that draws the line between forex trading and gambling.
Technical analysis follows the belief “The trend is your friend”. The followers of this school of thought believe that a trend does not change unless it is given a reason to do so. There has to be a reason like a news announcement or maybe an event that affects the financial world. The trader has to read charts and then determine the direction of the overall trend.
Fundamental analysis, on the other hand, is based on news and major events. It is believed that no trend lasts forever. It comes to a stop sooner or later.
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To succeed, the Forex trader must keep an eye on the charts as well as the news. |
As a trader, you have to learn both these kinds of analysis if he wants to correctly predict the trend and earn profits. Though charts are an essential part of predicting the trends, you can never predict the overall trend until you read them in combination with fundamental analysis.
[ Learn: Trading Approach; Fundamental or Technical? ]
System Hopping
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All good trading decisions are a result of lessons learnt from experience. |
When the trader is not confident about his skills, he begins to switch from one system to another and keeps changing indicators without understanding how either works. All he knows is that he has to buy a currency when it crosses a mark. The calculation involved in this is beyond his comprehension. When he understands this theory, the calculation begins to make sense.
Another thing that leads to system hopping is the trader’s fear of losing money. All traders are in the market to earn profits. They forget to enjoy the game and are always looking for wins.
Beginners know that they cannot earn profits and there will be losses too. But though they know this intellectually, they are not equipped to accept it emotionally. As a result, this fear of loss leads to add one indicator after another to their system, so that they are on top of the market. They can now read the indicators and where they are pointing but are unable to see the price trend.
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When you pile indicators, you will be more confused because each indicator is telling you to do something different. |
This is because, while an M.A.C.D indicator may indicate that selling is the right thing to do, other indicators like ADX may indicate that it is a good time to buy. This becomes complicated and you will only become more confused and as a result, make bad decisions.
[ Learn: Forex indicators – a brief overview ]
Read the Charts
This is where Technical Analysis comes in. Follow the charts and with the help of technical and fundamental analysis, see where the overall trend is heading. Is it going up or down? When the trend is moving from the upper hand left corner to the lower right side, then the trend is moving down and vice versa. Figure out the trend and focus on it. That is the only way to avoid a lot of complication and trouble.
When you learn to read the charts and figure out the direction of prices, you will look back on your trading career one day and wish that you had sold the USD/EUR while you had time.
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Taking a look at the weekly chart will help you determine the direction of the trend. |
Some traders only check the overall trend and refuse to take any risks by going in any other direction. These are the safe players. They need patience but in the end, their patience pays off and by simplifying their trade, they are able to rest easy.
Conclusion
Remember that Forex trading is not gambling. Gambling is all about luck, whereas Forex trading is about being able to read charts and predict trends by using logic. Forex experts are rarely wrong when they make predictions. Rather than asking for tips and depending upon the experience of others, it is best to learn how the indicators and system work. Make trading simple by following the trends and move on when you find something that you do not understand.
