Tuesday, May 26, 2009

FX Trading And Analysis

I've become a little frustrated with most of news sources out there. If you've been an active forex trader for any length of time you'll notice that talking heads are always trying to tell you why something happened.

That's really nice, and might possibly help you learn about various financial interactions, but it's absolutely useless from a trading point of view. If you are trading you need to figure out what's going to happen -- not what just happened. Check out this video (complete with atrociously low audio levels).

This type of analysis is unlikely to help you with your fx trading tomorrow. Generally, how the markets will move tomorrow, based on tomorrow's news, is not something you'll get from any of the gurus and talking heads.

On the other hand useful analysis will be too slow to be meaningful. For example, I'm very confident the world economy will eventually recover. When that happens we'll have a period of high interest rates as rising commodity prices drive inflation. Guess what? This will mean that carry trades pairs will end up at much higher prices. Unfortunately, I can't tell you when the world is going to focus on this. Generally, not before the money moves from wherever it is to wherever it is finally going to end up.

The closest thing to predictive analysis, or something you can really use to drive your forex trades, is technical analysis. Charting. Something which gets very little respect in some circles. Many people don't understand it and many others discount it because it isn't able to make perfectly accurate predictions. Technical analysis does not have to be a perfect tool for prediction. It merely has to increase the odds that your fx positions end up earning you a profit.

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