Forex is a global currency exchange with a huge daily turnover. Today it has become available to any adult who has access to the Internet, and makes it possible for everyone to earn money, regardless of their place of residence or education. With the availability of mobile offers for bidding, this way of earning does not limit the private trader in the ability to manage their own time, or in freedom of movement.
Rules of the game
In general terms, in order to start bidding it is necessary:
• open an account with any broker of your choice;
• download and install a client program that exchanges data with the broker server, that is, it receives data on exchange rates and sends information about transactions concluded by the trader.
The amount that a trader deposits into his account for subsequent trading is called a deposit. Its size depends on the trading conditions put forward by a particular broker.
Further, the raider tries to predict currency price fluctuations in order to buy cheaper and sell more expensive. Successful transactions increase the deposit, while unprofitable transactions decrease it. The total result of all transactions determines the income or loss received by the trader.
Analytical Approaches to Forex Trading
The key factor determining the profitability of the trader is precisely the forecasting of fluctuations in exchange rates. And the approach to foreign exchange trading can be different:
• based on the unpredictability of rate fluctuations;
• based on the influence on the exchange rates of the balance of power in the global economic arena.
In the first case, the assertion that quotation fluctuations over a period of time can be guessed, but not absolutely accurately predicted, is taken as a basis. As part of this approach, the trader uses technical analysis, intuition and experience.
Technical analysis is a methodology for approximate forecasting of price movements based on their behavior in the past, that is, studying the graphs of price changes over the previous time period.
Technical analysis is based on two “pillars”:
1. a tendency (an existing and ongoing process called a trend) is more likely to last than stop, that is, it has some inertia that can be used;
2. sooner or later the trend will end and, quite possibly, will reverse (growth stops, it can be replaced by a drop, etc.).
This approach to trading turns it into a kind of gambling. It goes well with trading on short-term (5-minute) charts, where the trader’s luck and instinct are crucial.
The second one is based on the fact that the demand for a specific national currency depends on the economic and political situation, the situation on the securities market, world prices for gold, oil, etc. Therefore, by analyzing many financial, economic, political and other factors, it is possible to predict with sufficient accuracy changes in exchange rates.
The basis of the second approach is fundamental analysis, that is, the methodology for calculating and analyzing certain financial and economic indicators and ratios. It is used for long-term forecasts, for example, when riding on weekly and monthly charts.
Development of a trading system
With any approach to currency speculation, you should remember that playing in the Forex market is an investment with a high degree of risk. According to many experts and successful traders, success at Forex, at least half depends on the availability of its own trading system.
However, it often happens that, having studied the basics of technical analysis and tried his hand at a demo account, a beginner begins to trade using real money. Many manage to achieve a positive result, but profit. A chaotic search begins for magic tricks and ways that will increase profits and reduce losses, which ultimately ends with a drain of the deposit.
According to statistics, up to 95% of novice traders lose their first deposit.
For this reason, all tests and experiments are recommended to be carried out on a demo account. And in trading for real money, strictly adhere to a pre-developed trading system.
A trading system is an action plan that takes into account:
• conditions for opening a transaction;
• actions after opening a transaction in case of a successful change of situation;
• actions after opening a transaction in case of an unsuccessful change in the situation;
• completion of the transaction.
The trading system reduces the emotional burden, reduces uncertainty and keeps the trader from rash impulses, spontaneous and risky transactions.
If the use of the developed plan brings constant loss, then the developed trading system is erroneous and needs to be processed.