Trading as a Science

Currency trading is part art and part science. However, there are reasons for this, and with some minor adjustments on your part, you can focus more on the controllable scientific aspect of the Forex market and start trading more methodically and effectively.

To take an approach like this, certain conditions must be met. First, the markets must move in a way that can be understood. And second, you must have a way to understand what causes those movements, and then create a way to transfer that understanding into a predictive model that will allow you to anticipate the future movement of an asset.

A mechanical approach can go a long way toward accomplishing this. Known as technical trading, a lot of traders use charts and look for trends on them to try and see where historical significance occurs in that asset’s price, and then tries to extrapolate the future with that method. This is often very effective for short term traders, like day traders or ultra short term binary options traders. This works simply because so many people use this method to help them predict their asset’s future that it becomes a self fulfilling prophecy. In other words, it works because people believe that it will work and so they act accordingly. It’s a good start, but not the only thing that is helpful toward predicting prices.

In order to truly understand how an asset will work in practice, a bigger framework is needed, one that incorporates the psychological games that go on at the smaller levels, but something that looks at bigger trends, too. This is where fundamental indicators come in. These look at the overall health of an asset. If you were to trade stocks, these would be the papers that are submitted to regulatory bodies to show what the company’s financial health looks like. They are the SEC filings, the profit and loss reports, the information that is shared at shareholder meetings, and so on. They are the health indicators of what the company is currently doing compared to where it’s been.

To mesh these two diverse ways of looking at an asset together, a lot of traders have turned toward using signals services to help them. This is good and bad, though, and not always helpful. A service is good when it is able to look at these things and create good information, and then present it to you in a way that is timely, accurate, and helpful. If the service doesn’t do all three of these things, then it is not worth your attention. The trick is to figure out how to get to this point. How do you know if a service does this? You can read reviews and test it out, and this should give you quite a bit of information. But the fact is, what works for one person doesn’t necessarily work for everyone. Be cautious, and approach anything new with care.

The big corporate traders have tools that you probably don’t have access to. They have dozens of analysts looking at different parts of the same asset, each with multiple screens and maybe multiple hard drives. You can approximate this with a service, or you can begin doing your own research, create data of your own that will help guide your future, and move from there. The best way to do this with effectiveness is to focus on no more than two or three distinct assets and put your energy into them. It doesn’t matter if it’s a currency, a stock, an index, or a commodity. The point is, if you spend time on quality research, you can do for your few assets what the major corporations do for hundreds. And then turn that into a huge profit.