Learn Currency Exchange with this formula
If you want to learn currency exchange correctly then you need to understand the formula of market movement. Most forex traders don’t and that’s why they lose money – so here it is:
The equation is simply:
Forex Fundamentals (Supply and Demand) + Investor Interpretation = Price
Now that’s nice and simple – but most people fail to understand how the equation creates price.
If you believe ANY of the following then you will lose
-You can predict market movement
-You can trade news stories and win
-You can day trade and win
Lets look at the equation more closely and its significance.
Supply and demand fundamentals and the news a relevant but despite the fact that we all have the facts to see – we all draw our own conclusions on what they mean – we are not creatures of logic, we are dominated by our emotions of greed and fear.
It’s a fact that prices tend to spike away from fair value and then return to it – as all spikes based upon human emotion are short lived.
As humans when our emotions get involved, we push prices to far up or down as greed and fear take hold.
Most markets form important market tops, when the news and fundamentals appear most bullish and rally when there most bearish, this is human psychology at work.
So if you try and trade the news you wont win in most instances as – its not only instantly discounted in the price, you also don’t know how the millions of traders will perceive the facts.
Human nature is constant of course and chart patterns that represent this psychology repeat – but don’t be fooled that they do so to a scientific theory – they don’t.
Trading is an odds game not a game of certainties.
You don’t trade and predict you wait and trade the actual event i.e. the reality of price change.
You also have to keep in mind that trader psychology needs to be measured over the long term and you can’t tell what the mass of traders (millions of them) will do within a day
So keep in mind that the best way to trade is to follow price action on a forex chart and ignore the news, forget scientific theories and people who say you should predict and finally forget day trading, as the time period is to short.
If you understand the above bit of forex education and think about the equations significance, you can learn currency exchange the right way and enjoy currency trading success.