CLEAR UNDERSTANDING OF MARKET DIRECTION/MOVEMENT IN FOREX

Being that the essence of this blog site is to relate foreign exchange trading in a more easier way, I will be giving you lay man’s approach for a clearer understanding of the way market moves in the forex market.

Unlike any other financial markets, foreign exchange market is traded in pairs
It is made up of two currencies as a pair which represents the financial instrument. We have 8 major currencies which are: USD, EUR, JPY, GBP, CAD, AUD, CHF and NZD. When you bring two currencies out of this list and join them together, you will have our investment instrument.
USD + EUR = EUR/USD
USD + CHF = USD/CHF
AUD + GBP = GBP/AUD

Having two currencies as our financial security means that, there are two different economies involved in each pair. That is in USD/JPY; we have USD representing the US economy and JPY representing the Japanese economy. In EUR/USD, we have EUR from European economy and USD from US economy. Therefore the market movement of this pair “EUR/USD” is determined by what is happening in the European economy and the US economy as well. That is the economic condition of this two different economies good or bad will determine the direction of the currency. When the economic condition of US economy is bad, it means that the US dollar is weak in this sense you will be selling it and vice versa. The simple general fundamental rule is to buy the stronger currency and sell the weaker currency.

Among the two currencies making a pair, we have the counter currency and base currency. The first currency among the pair is the base currency while the second currency is the counter currency. In the pair EUR/USD for example, the EUR is the base currency while the USD is the counter currency. Also in the pair USD/CHF, USD being the first currency in the pair is the base currency while the CHF is the counter currency.

Understood? I hope so, and then let’s proceed.

When a sell order is issued to your broker to sell a currency pair, it means you are selling the base currency (i.e. the first currency in the pair) and at the same time buying the counter currency. Confused? No need to be, just know that when you place a sell order in your broker’s platform to sell Eur/Usd it means you are selling EUR and at the same time buying USD in exchange. When you place your buying order to buy EUR/USD, you are actually buying EUR being the base currency and at the same time selling USD being the counter currency in that pair.

Bringing this lesson practically, if an economic news is released in US economy signifying that the economy is really in a good shape, As a good forex trader, I will be buying the USD as a stronger currency.
This will be done by placing a sell order on EUR/USD, a buy order on USD/CHF, a buy order on USD/JPY, and sell order on GBP/USD. Understand that when I place a sell

SEE THE WONDER OF APPRECIATING SMALL RETURNS IN FOREX

In the cool evening, I was sitting with a group of friends chatting over a drink and the issue of “forex and gambling” was raised. It is no news that there are so many adverts on papers placed by forex trainers who claim to teach you on how to make massive returns of 100% on forex within one week of trading. Know that they all care about their seminar fees which they will get from you and not your future as a forex trader. This hype have swept the feet of many newbie in forex and landed them in a misery.

I know you will be asking is it not possible to make such returns from forex? This is exactly the question one of my friends at the discussion asked. It is very possible to make even more than that in the forex market even within less than 3 days of trading, but that does not make you a professional trader. It means that you are putting out a lot of risk than you should. And it is not advisable for a person who really plans to have future in the forex world. Such people can make enormous returns today but can wipe their entire account in the next day: a pure forex gambling.

Gambling is activity of playing a game of chance for money. One fact that should be noted is that no “trading system” is 100% guaranteed, which means that there are bound to be losses sometimes in a trade. How you cut your losses by exposing your capital to a lesser risk matters a lot. Professional forex traders observe the rules of the game, treat forex as an on-going business and employs the strict risk management rules to ensure their future in the market is secured.

The essence of this post is to let you understand and appreciate the small but steady returns as a way of building a life wealth from the market. This helps to make forex trading easier for you as you pip the market with consistent trading. Some people are scared away from forex because they hear forex is a very risky market but you can make it less risky for by appreciating small returns. You need to understand the importance of using this powerful and old concept, "COMPOUND INTEREST" in making most of your investment.

A trader who makes as little as 2% weekly returns on investment (ROI) and compounds it for three years; you will be surprised at what he will be getting from this market. Then, compound for more five or ten years and you will see that small 2% weekly ROI can lead you to an abundant retirement. Note that in average, professional forex traders set their weekly target to 8%-15% returns on investment so that you will understand what a forex can do for a man who knows his onions.

Mr. Kingsley started trading forex with a $7000 and his weekly target of ROI is 2.5%. He decided to compound his investment for the period of five years and he arrived at a whooping amount of over $220,000.
This is why professional forex traders go into fund management with confidence. They know with target of small returns for some period of time, their risk is far reduced. Forex gamblers can not be able to operate fund management because that will mean playing with people’s money and they will be burnt by it.

To be able to achieve this feet which is very possible, a trader should consider the following factors
• The use of compound interest warrants your patience. Like Mr. Kingsley who has to wait for 5 years; it took him patience.
• You need to be consistent. In appreciating small returns in forex , you need to trade consistently to be able to meet your trade target/goal.
• Make use of proper risk management. You can check out our post on risk management, read it, and absorb it if you want to be among the professional forex traders and not a gambler.