Becoming A Forex Trader Means Mastering The Tools Of The Trade

The Forex market is very much a technical market and as such it is supported by a barrage of software tools which are not simply helpful to the trader but are an absolutely essential part of trading in a market which enjoys both high volume and considerable volatility. It is essential therefore that traders not only know what tools are available to them but are skilled in their use.

At the heart of Forex trading is a wealth of information which has to be not only constantly updated but which also has to be accurate. Such data, which is essentially displayed through a series of computer screens, needs to cover both current currency price data and historical price data and the systems in use needs to be able to analyze and display this data in a form that is of value to the trader.

In addition traders need to have fast and easy access to current and historical political and economic data and have to have the ability to analyze currency movements in relation to such information.

There are two fundamental forms of trading in operation today - reactive trading (in which a trader buys and sells in direct response to political and economic events) and speculative trading (in which a trader buys and sells on the basis of his prediction of the direction in which the market will move in response to current political and economic events). Whether a trader is buying and selling on a reactive or speculative basis it is essential that he has accurate and up-to-date information on which to base his decision.

But information alone is not enough and traders also need to have access to a range of tools that allow them to analyze this information, whether such analysis is fundamental or technical in nature.

Fundamental analysis is based upon the belief that the market moves in response to such things as political events, economic news, changes in trading patterns, movements in interest and similar events. Tools required here will therefore include such things as software programs that can plot currency movements against trade data and interest rate data and use historic data to build models which predict movements in a huge variety of different political and economic conditions.

Technical analysis by contrast is based upon the belief that the market follows a pattern which has been well established over time and that future movements in the market can be predicted by analyzing and charting historical data to produce a series of models which can be used to predict future patterns.

Whatever your position either as a reactive or speculative trading and whether you are buying or selling on the basis of a fundamental or technical analysis of the market the one thing you need is information. In essence this means using a range of complex analytical tools and you will need to take the time to familiarize yourself with the tools available to you and then to master the skill of using these tools.

Forex Scalping Methods

Scalping the Forex market is one of the fastest growing methods for trading Forex in the modern day world. In Forex scalping trading is performed over much shorter periods than other forms of trading and income is often generated even from relatively small fluctuations in a currencies price.

The main reason people trade via scalping is often that due to the quick nature of the method, profits can be built up fairly quickly. What’s more it also makes market movements far less likely to cause a large differential in the buy and sell prices.

Other methods of trading such as technical and fundamental analysis rely on analysing trends and predicting movements based on past performance or current news. Forex scalping offers a much quicker turn of events and traders using this method are simply looking for lots of small movements in currencies in any trading day.

Due to this difference in speed of trading, Forex scalping often means that traders run a much tighter ship as the risk is spread short time over a large number of currencies. In other methods of trading losses can often run a bit loose as the trader searches for that one trade that will return a big profit.

When scalping a trader will often only hold a currency for a matter of minutes before they resell at a profit. What is basically happening is that the Forex trader is playing with the spreads to bring in money where others fail to spot such a small market move.

Almost all successful Forex scalpers base their strategy on absorbing masses of information about the market they are trading in. You will not find many new traders adopting scalping methods simply because of the level of knowledge and nerve you need to succeed.

It is also rare that a Forex scalper will hold their position overnight. Most will close all trades before finally turning their computer off. If they do not then the trade they leave running is not really following the Forex scalping method.

The scalping method is usually based on three factors:

Liquidity – The more liquidity in a market then the more attractive it becomes to a Forex scalper as they can make more profitable trades in any given period.

Volatility – Only the most stable of markets are attractive to scalpers as a big movement is not what they are looking for. A stable market offers the chance to gain lots of small profits from many many trades

Time – A successful Forex scalper will not always begin trading at the start of a day. True, the longer they have to trade then the more they can make but patience is the key since it is pointless trying to scalp the Forex if market conditions are not right, for example in a period of large economic uncertainty.

As you can see, providing you have taken the time to learn as much as possible about market conditions then Forex scalping methods are not that difficult to implement. In many ways they are much more secure than other methods and this is why the method is becoming so popular.