Currency rates tend to move in a volatile manner. For a newbie Forex trader, this kind of environment is like jumping right in the middle of a pack of wolves ripping you apart until there’s nothing left of you. Well, that description might be brutal, but trading the currency market is a lot more demanding than stocks. The first and the most important reason is that you can be highly leveraged in Forex, most people would have this get rich quick mentality knowing that with just a $500 start up capital a $2,000 gain is really possible within a few days when done correctly. How can this be done correctly? There is no such thing as a perfect trade. Even the brightest economist knowing every single detail about a country’s economy that would directly affect it’s currency can be wrong at most times. The only difference between a newbie trader’s mistake and an economist’s mistake is that a newbie trader would remain confused as to where the ultimate direction of the currency is headed. An economist would assess his mistake and find the reason behind that wrong assumption down to the minute economic indicator.
You don’t necessarily have to be an economist to effectively trade currencies. In order to avoid confusion and have a better perception about the behavior of the currency pair you are to deal, paying attention to important economic indicators within the labor market, the business sector, economic structure of the country and even the data from the consumer can increase the likelihood of a successful trade. Anticipating economic trends whether on micro or macroeconomic level allows you to adjust positions accordingly or play it safe by staying on the sidelines and observe when you feel that current conditions are hazy. Knowing when and why you’re trading eliminates the crazy and loud resonance the market produces and turns it into a much more orderly and harmonized tune.