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A Practical Approach to Trading Currencies
Sometimes in trying to make money trading currencies it is all too easy to put the cart before the horse. That is to say when looking for profitable approaches to trading currencies, we get involved in too many details and lose sight of the big picture. Whether we end up with a conservative approach or an aggressive approach, fundamental trading or trading based on technical analysis, a practical approach to trading currencies will more likely end up making money.
Practical: realistic, down-to-earth, sensible, levelheaded, pragmatic, rational, businesslike.
A Fundamental Approach
The first and most essential part of a practical approach to trading currencies is understanding Forex fundamentals. No matter how skilled a currency trader may be in reading market sentiment with technical analysis tools, a Forex trader who understands the fundamentals knows where the market is eventually going. Understanding Forex fundamentals is a twofold process. There are solid facts and figures that are essential for fundamental analysis in foreign currency trading. These are balance of payments, cash reserves or debt, and employment figures. Less tangible but equally important to understanding Forex fundamentals are national politics, trade policy, monetary policy, and central bank pronouncements and stated policy. What may seem to be a small change in national monetary policy may lead to substantial changes in so called solid factors such as balance of payments, employment, and national debt or currency reserves.
Understanding Market Sentiment and How Crazy It Can get!