The study of economic activity, or economics is one of my favorite areas of study. That’s because every economy in the world is constantly changing. More importantly, because of the correlation between the health of economies and the currencies attached to those economies, I’m able to make money in the foreign exchange market; and believe it or not, you can too. Today, we’ll talk about the relationship between economies and currencies, how to trade forex with an understanding of this relationship, and the do’s and don’ts that all currency traders should follow. So, let’s get right to it!
The Key To Profiting From Economic Data
The simple fact is that investments can’t be made into economies directly; however, it is possible to be profitable by investing in economies through their currency. The reality is that any country’s currency and the movement in value of that currency is heavily reliant on the economic health of the country. And since currency is a tangible asset, it can be traded for a profit. With that said, when a country’s economy is doing well, the value of the country’s currency grows. Adversely, when a country’s economy does poorly, the value of the country’s currency falls. The best part of it all is that currency traders have the ability to profit no matter which direction a currency is headed; all a currency trader needs to do is correctly predict the direction of the price movement within the currency. Then, through the use of an online currency trading platform, it’s possible to make trades and realize profits.
Taking Advantage Of The Relationship Between Economies And Currencies By Trading Forex
As mentioned above, we can’t necessarily directly invest in a country’s economy; however we can invest based on economic growth or lack there of by trading currency. Doing so is a relatively simple process. Here are the steps you’ll want to follow…
- Research – The first step in any profitable trade is research. While making predictions without research is nothing more than gambling, there are market indicators that can help to make your predictions more profitable more often. When trading currency, it’s best to research the health of the economy attached to the currency you’re trading. For example, if you plan on trading the United States Dollar, you’ll want to look into the health of the US economy to determine which direction the value of the currency is headed.
- Trend Tracking – Once you’ve done your research and have an idea of where a currency should be headed, it’s time to determine when to enter a trade. This is best done through tracking trends. To do so, open the value chart for the currency you plan to trade. Once the chart is open, draw horizontal lines at the highest value the currency has reached and the lowest value. The highest value is considered the point of resistance and the lower value is considered support. It’s at these points that the value of the currency is likely to change directions and run for the most time. So, these are the best entrance points.
- Make Your Trades – Finally, it’s time to start making your trades. Simply watch the trend and when it gets close to the resistance point, bet against the currency’s growth. When the trend gets close to a support point, bet for the growth of the currency. This will give you the best chance of ending the trade profitably.
Currency Trading Do’s And Don’ts
When trading currency, as with any other investment type, there are a few things that are well worth doing, and a few you’ll want to stay away from. Here are the basic do’s and don’ts of trading currency…
Do’s
- Do your research to get a better understanding of where the value of the currency is likely to go.
- Do trade with a trusted and reliable broker.
- Do trade with a level head. Emotional trading leads to losses.
Don’ts
- Don’t trade without a trading plan with proven strategies for risk management and optimal gains.
- Don’t trade without research.
- Don’t disregard trends in economic activity.
Final Thoughts
Well there you have it. Thanks to the strong bond between economic health and currency, it’s possible to make money trading forex through research of an economy’s health. So, what are you waiting for, it’s time to trade!
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