Now that you have a basic understanding of Forex terms and concepts, you can start to trade based on your own experience and understanding. You are moving beyond merely opening and closing positions on a hunch, and you are beginning to think ahead. This is a valuable step in the process, and with practice, your trades will become increasingly profitable. There is a lot of research to be done if you want to start trading at a high level.
Value, Timing and Currency
Every currency is worth the price that the market will trade for it. Beyond this basic rule, there is no guarantee of any particular value. When you begin thinking of your next trade, you need to avoid thinking dogmatically about what a currency "should" be worth. Each currency type is worth exactly what someone else will pay for it and this is going to change. There are two ways to consider what this change is going to be.
First, you can look for a trend to form. While trends are sometimes misleading and can be hard to spot, there are a lot of different possible trends. We will look at some specific trends in other articles in this series. However, you need to plan when you intend to open and close a position within a trend that interests you.
The second way to predict a change is to understand how people typically look at a particular currency.
Entire countries worth of traders tend to think in terms of the two market-moving emotions -- greed and fear. When times seem good, people go into more speculative currencies like the Australian Dollar or the Canadian Dollar. During more emotionally trying times, fear takes over and a lot of traders load up on currencies they perceive as safe, such as the US Dollar and the Japanese Yen.
The psychology of the market is as important as the fundamentals of a country and its currency. A currency's value can be battered because it's unpopular. In the same vein, the currency of a country in economic ruins can be held up because it's well perceived.
The last and arguably most important part of formulating an advanced strategy isn't about how others think -- it's about how you think.
If you allow yourself to be swept up in what the market thinks, you will always be following someone else. If your research gives you a strong indication that a very profitable trend is forming or that perception about a currency is about to change, go with it. Do not allow the news or other traders to sway you. When you set your strategy, follow it like a battle plan and treat your strategy as if lives depended on seeing it through. When you stand steadfast to your strategy and base your plan on solid research, profits will very likely come your way.