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Most traders simply don't understand the factors that cause currency price movement and although this is a basic of currency trading success most traders get it totally wrong and lose...
Here is the equation for Currency price movement
Supply and Demand Facts + Investor Perception Of = Price
That's simple you may say and it is but it means all the common beliefs below are wrong:
- You cannot predict price movement in advance
- There is no scientific theory of market movement
- Market price movement is chaos
- You cannot trade fundamentals or news on there own
- Day trading and scalping are doomed to failure
The facts or news are not important in Forex trading, its how investors see the facts, coloured by the emotions of greed and fear that is. Furthermore, humans are creatures of emotion not logic, so you can never predict what they are going to in advance.
You have a market which is chaos and totally unpredictable, so how can you win?
You need to forget all the people who say they can predict and markets move to mathematics and forget them. As prediction is simply hoping or guessing and you wont win doing that! You need to use a different way to make profits and that's to trade probabilities.
Although humans cannot be measured with certainty, human nature is constant and this will show up in high probability chart patterns, which can be traded for profit.
You wont win every time but if you trade the odds and keep your losses small and run your winners, you can make a lot of money.
When trading the odds, you never try and predict what will happen next - you trade the reality of price change, as you see it on a Forex chart. The best way to do this is to use a breakout methodology and we will look at how to implement a breakout Forex trading strategy, in the next article in this series.
The real message of this article is - trade the odds and trade the reality of price change and if you do this you can enjoy currency trading success.
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