Many people think of securities whenever discussing investments. To be sure, securities offer a less illiquid investment vehicle compared to alternatives like real estate. However, the investment vehicle is still illiquid from the perspective of the forex market. With trillions of dollars exchanging hands daily, forex is the king of liquid markets.
Be that as it may, stories of people who have made huge losses in the market abound. It is because the market is volatile and trading positions can go sideways in a flash. In this light, you may be wondering why the market is still famous. Well, forex trading is more like an art, and only those who master the art reap the profits. In this article, we will be taking you through various tricks with which you can earn profits quickly.
Before we launch into the meat of the article, you should know two things. First, familiarize yourself with the concept of financial markets and, two; learn to analyze the forex market.
Familiarize yourself with the concept of financial markets
The financial markets entail all markets where people invest funds to earn a profit. Often, the investments face high-risk levels depending on the volatility of the market. In the forex market, traders take advantage of fluctuating exchange rates to earn income. The fluctuation in the exchange rates results from a range of factors. On the one hand, the need for institutions to buy foreign currency for business needs affects the interest rates. Also, the fluctuation might result from the actions of a speculator.
Learn to analyze the market
Analysis skills are indispensable for any trader that wants quick profits. You must be able to use the best forex indicators to spot trading opportunities. The indicators, as well as adequately selected forex expert advisors, are excellent for a winning trading strategy. When learning to analyze the market, you will notice that there are two strategies. The first focuses on macro events, the state of the global economy, political stability, inflation numbers, and more. It is a fundamental analysis. On the other hand, there is technical analysis, which narrows down to the price action of the currency pairs in question.
Commonly, traders choose to specialize in one type of analysis. However, it is harmless to master both fundamental and technical analysis. Each type of analysis enables either short-term or long-term profit-making. You can earn profits within a minute by focusing on the price action.
Know how banks trade forex
Banks and other huge financial institutions like hedge funds are the market makers. These players determine the direction of the market. Usually, traders clutter their charts with many indicators to predict the direction of the price action. Unfortunately, even the best forex charting tools cannot be helpful if you do not understand how banks trade.
It is always fascinating to have a glimpse of what the key players in the market are up to. A common misconception is that a bank trader’s chart is “soup” of indicators and FX expert advisors because they are right most of the time. To be sure, bank traders consider both fundamental and technical analysis before they make their move. The only thing the bank traders are interested in is the critical levels like support and resistance.
Important to note is that many, if not all, of the indicators available to you, were built on guessing the next direction of the price action. Technically, following the indicators means that you are trading against the market, hence against the market makers like bank traders. Unfortunately, depending on this strategy has a small win rate. Therefore, do not complicate your strategy.
Trade economic data releases
Every month, major economies like the United States, the United Kingdom, Japan, Germany, the European Union, and others release economic data. For each country, there are more than seven key releases. Each data release has a positive or negative effect on the major currency pairs. Interestingly, just eight countries account for the seven major currency pairs. Therefore, focusing on economic data releases from these countries presents a huge trading opportunity.
Nonetheless, trading economic data releases are possible only if you understand how they affect the market. If you are using an automated forex trading system, you should configure it in a way that understands the significance of the data. Luckily, there are AI algorithms just for this purpose. For example, if you want to trade the US non-farm payroll data, you must be clear on what the data means and anticipate its effect on the exchange rate of the US dollar.
Forex trading is a simple art that many traders are guilty of complicating. Well, there is no doubt that technical indicators and expert advisors are helpful. Nevertheless, the quickest way to make profits is through trading with the market. First, know what the bank traders are up to, and use economic data releases to anticipate the direction of price action.