The markets are constantly in flux – and the rulebook is always under revision. But the past couple of years have seen more change than most.
If you’re new to forex, you may not find this information in the standard books and guides (unless they’ve been updated very recently). And if you’ve been trading forex for some time, you’ll know all too well that you need to adapt in this game – or die!
Profit in 2012 with these three new forex rules
Here are the three new forex rules that I believe any trader should be armed with for the coming year. Plus, I want to tell you about a great way you can apply them to your trading – a method that’s already producing some fantastic profits for the traders who are using it.
1. Take a fresh approach to fundamentals
The traditional wisdom for a forex newbie would say that he or she needs to get a grasp on fundamental analysis – that means understanding all about economic policy… inflation… growth rates… unemployment rates…
(Are you still awake at the back?)
By understanding the historic effects of political and economic events on a country’s currency, you can then try to predict the effect that current events will have on that currency today.
Well, good luck with that!
We now live in a world where the planet’s best economic minds can’t decide whether one of our most important currencies is worth trillion-dollar bailouts – or should be simply chucked in the recycling bin behind the European Parliament in Brussells.
A world where, when asked how they arrived at the sum of $700 billion for the TARP bailout, a US Treasury spokeswoman said: “It’s not based on any particular data point, we just wanted to choose a really large number.”
The old-fashioned notion that if a country has a good economic outlook, it will have a strong currency, simply doesn’t hold water any more.
And in a jittery market, filled with rumour and speculation, good news no longer means that the price will go up. Just as bad news doesn’t mean that it’ll go down.
I think it was Thomas Jefferson who said this: “He who knows best knows how little he knows.” And I believe it’s a good mantra for fundamental analysis.
Fundamental analysis can tell us that something is going to happen – and when that something might be. However, it shouldn’t lead us into second-guessing what we “think” the markets are going to do.
Traders who believe they can “out-think” the markets – tend to have very short careers!
2. Pick the right time to trade
Saying that the forex markets are open 24 hours a day, is a bit like saying that the M25 is open 24/7. Strictly speaking, it’s true. But there are times in the day that you can whiz round at 70mph. And there are times when you’ll be stuck in traffic, hitting 10mph at best.
There are three main forex sessions that follow one after the other as the sun rises around the planet: the Asian session, then the London session, and finally the US session.
Where these sessions overlap, we see some of the most interesting forex action.
Here’s how the sessions fall …
Tokyo open: 0.00
Hong Kong open: 02.00am
Singapore open: 02.00am
Sydney close: 7.00am
Frankfurt open: 7.00am
London open: 8.00am
Tokyo close: 9.00am
Hong Kong close: 11.00am
Singapore close: 11.00am
New York open: 13.00pm
Chicago open: 14.00pm
Frankfurt close: 16.00pm
London close: 17.00pm
New York close: 22.00pm
Sydney open: 22.00pm
Chicago close: 23.00pm
The session that we’re most interested in is the London session. London is home to the largest banks, used by businesses, government and individuals to exchange money. It is where you can find the maximum trading liquidity and volume in the forex market.
While the London session kicks off at around 8am, the rest of Europe does a good warm-up act for it an hour or two earlier. This helps to get momentum underway, so – in reality – things really start to kick off from about 6am.
3. Take advantage of the spread-betting firms
Gone are the days when only big City traders had access to fast prices and near-instant trading.
Spread-betting firms now allow you access to the forex markets with fast transaction times. And if you want access to live prices, direct market access has never been easier.
Plus, most platforms offer apps for smart phones, so you can manage your positions wherever you are. Add to this the ability to set up alarms when a certain price is hit or a technical level is hit – and there’s no need to be tied to your desk anymore.
Of course, there’s another advantage to the boom of the spread-betting firms – that they are all vying for your business. This means that you can take your pick of the best offers.
In my opinion, there’s nothing to be gained from loyalty to one spread-betting firm. Just as we no longer have a relationship with our bank manager (in fact, your bank will sting you for more and more charges the longer you stick with them!) so, too, we should move around and take advantage of all the deals on offer from the various spread-betting companies.
That way you can get the best offers, the cheapest trading, and choose the best platform for your strategy. Overall, shopping around like this can make a significant difference to your profitability.