Here we are going to give you a simple forex trading tip that is simple to learn, easy to use and can help you spot big trend changes in advance so here it is.
Its learning to spot bullish or bearish extremes in the market by using news stories – but your not going to be interested in the story itself just its influence on price.
Let’s look at it in more detail (and show you a live example of this tip in action) and start with a simple equation which is an essential part of any trader’s forex education:
Fundamentals + Investor Perception = Forex Prices
The fundamentals are there for everyone to see – but we all see them differently, drawing our own conclusions on what they mean and this huge mass of opinions equals the market price.
It’s a fact that as humans we are subject to our emotions when we trade.
The vast majority of traders are subject to greed and fear when buying or selling currencies. It is these emotions of greed and fear that always cause prices to spike to far away from fair value, as the investor psychology becomes to bullish or bearish.
Throughout history the most important market tops have formed when the news is most bullish and market bottoms when the news is most bearish.
What you need to look for in news stories is:
A bullish or bearish extreme in investor sentiment, then look for bullish or bearish news which does not rally the market when it’s bullish or see a sell off when it’s bearish.
Let’s look at a real life scenario and how this works.
For the last week the vast majority of traders ( around 90% ) have been expecting the Fed to cut US interest rates by 50 bps. On Thursday the Fed chairman spoke and seemed to confirm this – the vast majority of analysts then predicted a huge dollar sell off of the dollar against the euro – but it never came.
Why?
Because this news has been discounted earlier and the market hardly moved.
The euro hit a resistance level at 1.48 and this level is holding. This shows that the bearish dollar news is discounted and the Dollar has already absorbed the interest rate cut news in full.
So with the market stalling at a key resistance level, its time to look at the forex charts, for a turn down in price momentum and sell the euro.
While many in the news have been calling for a massive dollar sell off the charts are telling a different story.
Its time to buy the dollar has been pushed to far away from fair value.
We would expect the euro to trade below 1.40 in the next few months despite the vast majority of traders thinking it is going too sold into oblivion.
There is an old saying:
” If you can hold your head when everyone around you is losing theirs you probably haven’t heard the news”
In trading terms you have – but you are seeing the news in a completely different way to the majority, by drawing conclusions based upon its impact on price.
This forex trading tip will put you opposite the majority most of the time but as the majority lose that’s no bad thing. Learn to step back from the crowd and draw different conclusions, this forex trading tip can make huge profits and help you enjoy currency trading success.
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