Forex Is For Disciplined People

Forex Is For Disciplined People

I am not going to focus on the technical aspect of trading in this article. I think that too many people focus on the mechanics of trading and not on the mental side. It is my experience and belief that the mental side of trading is where most people need work. Sure new traders don't use a proper trading strategy but they also don't know how to think about the business of trading. They have faulty beliefs that will keep them in a state where they are losing money. Lets fix their head then their trading.

So what do I mean by lets focus on the mental side of trading? What I mean is that trading for many involves too many emotions. These emotions are would causes trader to make bad decisions in Forex. The more bad decision you make, the more money you will lose as a trader. It is my goal to teach traders to think about the game and how to think about each trade. By changing their internal representation of what good trading is first, then we can easily teach them winning trading system that will make them profitable and that will keep them in the black.

So what is good trading and what is bad trading? Most people who find themselves wanting to be a trader do so because they want money NOW. They don't want to wait the same amount of time that it takes investors to earn money. They want daily, weekly and monthly income from trading. There is nothing wrong with that and I share the same goals. Where I differ from the average trader is that I know that you cannot remove patience from the business of trading. It doesn't matter if you are day trading or investing.

Not only do these traders want income now, they also want to always be trading. They love the action of trading. My job is to replace their love of trading with the love of making money. Enjoy being profitable more than you love putting on trades. If they could learn this one thing they would lose less money. I also have to teach them that every trade has to be planned ahead of time. I don't want them making any gut decisions. The big banks use automated trading systems ran by super computers because they know how human emotions are not subjective.

If there is anything to take away from this article it is, focus more on how you think about trading. Do not allow Forex trading to become a game or a source of entertainment. Think of each trade you make as a major business decision that should be well planned and researched ahead of time. What if you are day trading? Of course in day trading your decision have to be made fast but your system will already have things such as lot size, entry point and exiting solves before you sit in front of the computer.

Factors That Affect The Forex Rate

Factors That Affect The Forex Rate

The regular movement of the forex rate affects everyone regardless of whether you are travelling to a foreign country or buying an item online.  Every commodity is affected by the economic law of supply and demand and the forex rate is not any different.  The demand and supply of a country’s currency is reflected in its foreign exchange rate.

During dips in the economy, consumers do not spend as much as they would during an economic upswing and this affects international trade.  This causes a country’s currency to decline compared to countries that are not in the throes of an economic downslide.  If a country experiences a boost in its economy, the value of its currency will receive a similar boost, unless its government decides to take action.

Growth of the Economy

A country’s economy must expand in order for it to meet the growing needs of an increasing population.  The problem that arises is if the growth is too rapid.  This causes an increase in commodity prices to overtake increases in salaries.  This, in turn, causes consumers to decrease their spending even in cases where workers have received wage increases. 

Most countries set an annual growth in its economy at a targeted 2%.  In cases where the growth percentage is higher than this target, the inflation rate will increase.  In this instance, the central bank of the country will take steps to increase the interest rates.  Increasing the interest rate causes an increase in the borrowing cost.  This causes consumers to decrease their borrowing which slows down general spending trends.  Traders can use this to their advantage as a change in the interest rates is indicative of a change in the foreign currency rate.

During times of deflation the opposite is true and it is normally a sign that the country’s economy is in the process of stagnation.  National banks tend to lower interest rates during these times in order to increase consumer spending.  The banks undertake this process to try and reverse deflation.

Interest Rates

The interest rates that the central bank sets affect interest rates that are charged to borrowing clients by their respective financial institutions.  When a country’s economy is under-performing, the central banks will consider a lowering of interest rates to boost borrowing.  The lower interest rates often cause consumers to borrow more and increase their spending which aids in a boost of the economy.  If the economy becomes too active, the national bank may increase the benchmark rate which will cause an increase in the rate for borrowings.  This makes borrowing expensive which will slow down consumer spending.

This fluctuation is relevant to investors looking to gain solid returns on their funds.  Asset yields in a currency are normally increased with an increase in interest rate.  This causes a demand by investors for that currency and ultimately causes an increase in the currency’s value.  In times when interest rates decline, investors shy away from the currency as they will not be getting a satisfactory yield.

The effect these factors have on currency rates is important for forex brokers.  Traders should keep an eye on interest rates and the economic climate of the currency pairs they are trading.