The key to being a successful trader in financial markets is disciplined learning, understanding the markets and planning trading. Let's get ready to deep dive into the world of trading financial markets.
We discussed that forex is the most liquid and volatile financial market in the world. There are countless opportunities to trade the vast range of instruments in different asset classes, but to make the most of them, you firstly need to know what moves the markets. Ultimately, prices represent the interaction between buyers and sellers based on the fundamentals behind the value. So, it is essential to understand the factors deriving the value of the financial assets, which are mainly categorized as follows:
The economy's overall health is measured by factors like GDP growth, sectors growth, trade balances, inflation, and employment data. These are known as macroeconomic data that affect the value of currencies in the big picture. Generally speaking, the healthier the economy, the stronger the currency is. Furthermore, companies financial statements, industries developments, demand and supply reports, known as microeconomic data, play a key role in driving commodity, bond and stock markets.
Central banks' decisions on interest rate levels and quantitative easing impact the money supply, which does not affect only the currency markets but the other securities such as bonds, stocks and commodities.
The political landscape, such as government interventions, elections, local or international conflicts and any other environmental events with uncertain outcomes, can affect the relative securities in value.
The overall feeling of market participants about the future direction of a particular market or economy is considered a powerful force that can move the markets. Market psychology can lead to bullish, bearish or neutral sentiment.
Companies reports, Dividends, industry development
GDP, CPI, NFP, Retail sales, JOLT, Jobless claims, Trade balance
Interest rates, FOMC statement, QE
Election, Hurricane, War, rebellion, Government policies
PMI, IFO, business cycles, Trends
Traders use two common approaches to examine the future direction of the markets.
Fundamental analysis refers to studying all financial, economic, political, and environmental factors that cause market movements to evaluate the intrinsic value of a particular instrument such as currency, stock, or commodity.
Technical analysis is the method of identifying the effect of all relevant factors on market psychology through the study of market action.
Each of which analysis methods you have chosen, you need to put your knowledge into action eventually. To do this, you essentially need to build up a trading plan that aims to keep you on track with your winning mindset.
A trading plan is a road map to success and consists of three components:
After developing your trading strategy and applying proper risk management rules, it is time to practice discipline by sticking to your trading plan. Discipline is the key to being a successful trader, which is characterized as follows:
Mastering discipline makes you control your common emotions like fear and greed to achieve a winning mindset.