The world is powered by trade, and multiple currencies power international trade. Over every 24 hours, trillions of dollars worth of global currencies change hands. Often, these trades are mere changes to numbers on screens, but these relatively minor changes ensure that the entire global economy functions as anticipated.
This piece covers a few ways to track changes to your favorite currency pairs from your favorite finance applications.
Proactive Tracking and Forecasting
You might need more time to react if you wait until people talk about a price change on social media. The best currency traders understand that executing trades seconds before the market changes can be the difference between surpassing your earning goals and taking on unbelievable debt. Contrary to your belief, the foreign exchange market has marginal instability.
However, almost everything that will happen to a currency pair is primarily accounted for before it happens. The US Federal Reserve Bank changing, raising, or cutting interest rates will not come as a total shock to institutional investors because they make these announcements beforehand, and traders know to be on the lookout by following every economic change of events. For instance, before the most recent rate cut on November 7, ongoing discussions indicated this possibility. To be on par with their online trading standard, you can use the best tools on the market to stay updated.
These dynamics are not restricted to the United States alone. The EU's central bank also keeps the same in isolation. Before implementing interest rate changes, the governing council of the ECB (European Central Bank) has to go through a lengthy decision-making process.
The usual response to this news and policy is extreme market movements, such as currencies losing value on consecutive trading days. At this point, traders make extreme decisions, driving the market up or down until institutional investors return the space to equilibrium.
Pip Calculators and Charting Software
As a trader in a competitive market, you're only as effective as the tools you employ. That's why the best traders have systems to chart, forecast, and calculate pips effectively. For example, while trading GBP-USD, you might realize that the market closes slightly lower at noon in New York as the folks in London close for the day.
Activities and things are happening in the market that most people need more patience or knowledge to pay attention to. Forex trading on an "industrial scale" is a game of fractions. Trading $100 million at $0.005 higher than expected can be the difference between making a profit or recording a loss.
Another thing to remember is the sheer volume of charts and forecasting software available on the market. It's essential to use the perfect strategy for your unique situation. Mixing multiple technical indicators can have the opposite effect by providing less clarity. The three main charts retail investors use in the foreign exchange market are candlestick charts, bar charts, and line charts. Other less popular chart types include figure, mountain, and point charts. If you choose the right broker, a large chunk of the learning curve is eliminated due to their support.
Fundamental Analysis
There's an ongoing academic debate in the forex trading space about the importance of fundamental and technical analysis tools in calculating and predicting currency performances. Many in the industry believe in the mathematical abilities of quants and researchers, while others understand that maths only tells a fraction of the story.
Except for the euro and other "block" currencies like the West African Francs shared by multiple countries, most currencies rely on relevant national statistics to maintain their value. Interest rates, purchasing power parity (PPP), Gross Domestic Product (GDP), and Consumer Price Index (CPI) are some of the best data sources to consider when investing in currency pairs.
Suppose the PPP of a developing country fails to grow considerably over a few quarters; it might be a sign of an impending economic slowdown in such an economy, which can lead to currency devaluation. It may be challenging to know these things early enough as a beginner, but over time, you can tell when certain combinations of national statistics are positive or negative. In the meantime, proper knowledge of fundamental analysis and its uses can help.
Combining Fundamental and Technical Analysis
The foreign exchange market is a reasonably predictable way to preserve capital while getting decent returns. You might not find the life-changing returns you yearn for by trading EUR-USD, GBP-USD, and other popular currency pairs. The growth you seek might be in undervalued and under-traded currencies like ZAR, CHF, and MAD, which are not the everyday traders' favorite because of volatility and liquidity.
There's no silver bullet for success in this space, but the best traders are often "students of the market" who focus on a handful of familiar pairs. Choose a few currency pairs, research the countries and currencies extensively, and combine technical and fundamental analysis.
