It is commonly said that success involves those that embrace change. Successful businessmen, for instance, create recent services that cater to the ever-changing demands of consumers.
The age-old saying, “The one thing constant in life is change,” isn’t any less true in trading. In fact, adapting to vary isn’t easy, but as a forex trader, your job is to be flexible.
One distinguishing trait I’ve noticed amongst successful traders is their ability to work out market themes by recognizing and profiting from patterns from different assets and time frames.
As an example, simply because you simply trade forex doesn’t mean you don’t should keep tabs in other financial markets.
We’ve learned from the Intermarket Correlations section of the School of Pipsology that currencies also share relationships with commodities, bonds, and stock indices.
Now, consider themes as theories that traders create to make sense of what’s occurring within the markets. But after all, a theory can only be good if it truly captures trends out there. If it relies merely on one’s biases, then you definitely might as well be trading along with your eyes closed.
How can we, as traders, discover market themes?
Step one is gathering data. Before you even THINK of putting a trade on, read up on what is going on within the economic landscape.
There are various ways to do that equivalent to reading major news web sites or reading up Global Market or FX Recaps.
Follow this up by taking a look at probably the most recently released vital economic reports.
Check whether or not they impressed or dissatisfied and if/how they affected market sentiment. Ask yourself questions like “How did the market react?”, “Is the market bullish?”, and “Is the market bearish?”
After investigating the elemental background and market sentiment, you possibly can move on to the technical aspect to seek out a legitimate forex setup that supports your biases.
Search for patterns, trends, and indicator changes which hint that price may move with the market theme.
Discovering market themes is about combining all key data points and turning them right into a workable trading framework. It’s like putting together a jigsaw puzzle from scratch: you start with the sides and slowly construct up the center to form an entire picture.
For instance, a news report from the U.S. comes out higher than expected, and the stock market soars however the dollar finally ends up getting sold-off. This could be a sign that the market is incredibly bullish and hungry for risk.
Using this information, you search for a technical swing setup that allows you to sell the U.S. dollar versus high-yielding currencies, just like the Australian dollar, at an appropriate price.
A few of you might be probably saying that this only applies to those preferring to trade higher time frames. Nevertheless, as a scalper or day trader, knowing what the expectation is for a specific economic report could also work to your advantage.
As with most things related to becoming a greater trader, learning how one can properly decipher the market theme is difficult. It requires patience, time, and exertions. But the actual fact is, properly identifying market themes could be very vital in trading.
The clearer the general market picture is, the simpler it’s so that you can determine whether the trade is really entering into your favor or it is solely faking you out.
Also, greater than simply going with where the market is taking you, having a set market theme lets you ANTICIPATE the direction to which it’s headed.
Now wouldn’t you desire to be able to that on this volatile market environment?