What is Forex?
Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world's currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. There is no central exchange as it trades over the counter. Forex trading allows you to buy and sell currencies, similar to stock trading except you can do it 24 hours a day, five days a week, you have access to margin trading, and you gain exposure to international markets.
Example: If you are living in the U.S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) into euros. The same goes for traveling. A French tourist in Egypt can't pay in euros to see the pyramids because it's not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate.
How to trade Forex?
To be able to trade Forex successfully we will be looking at a few crucial components which will be the structure of your entire career as a trader.
Now imagine a chair with 4 legs and each leg represents a component, if one of the legs is weak, the chair will break under your weight and you’ll fall flat on your face. The same holds true in trading. If your structure on any of the four elements of trading is
weak and you ignore it, there’s a good chance that it will cause you to lose out on your trade!
So let's begin looking at this 4 components:
- Fundamental Analysis
- Trading Psychology
- Risk Management
- Technical Analysis
Fundamental analysis is understanding the reason why the market is moving rather than identify when the move has happened.When we understand why something is happening we have more confidence in what we doing and if we can interpret how the market is thinking we have the potential to predict where the market it goes next.
Technical analysis is used to attempt to forecast the price movement of virtually any tradable instrument that is generally
subject to forces of supply and demand, including stocks, bonds, futures and currency pairs. In fact, technical analysis
can be viewed as simply the study of supply and demand forces as reflected in the market price movements of a security.
It is most commonly applied to price changes, but some analysts may additionally track numbers other than just price,
such as trading volume or open interest figures.
Risk Management is one of the most important topics you will ever read about trading. When you trade without risk management rules, you are in fact gambling. Risk management rules will not only protect you, but they can make you very profitable in the long run.The less you risk on a trade, the less your maximum drawdown will be. The more you lose in your account,the harder it is to make it back to breakeven.This means you should only trade only a small percentage of your account. The smaller the better.
Trading Psychology refers to the aspects of an individual’s mental makeup that help determine whether he or she will be successful in buying and selling currencies for a profit. Trading psychology is as important as other attributes such as knowledge, experience and skill in determining trading success. Discipline and risk-taking are two of the most critical aspects of trading psychology, since a trader’s implementation of these aspects is critical to the success of his or her trading plan. While fear and greed are the two most commonly known emotions associated with trading psychology, other emotions that drive trading behavior are hope and regret.
At Wave Motion we offer a Mentoring Program for you to develop your skills and trade as a professional trader. But if you decide to make Forex only a part time job we highly recommend our Signals Program or our Forex Robot.
After all this has been said we wish you good luck in your trading career and after you become a wealthy trader come over and share your experience.