Question:

Please teach me how to prepare for trading, as I am a beginner.

Olakanme from Startville

Answer:

Olakanme, my advice to you is spend the next six months reading and learning about the reality of trading. Read everything you can, especially the material that deals with the difficult aspects of trading, the emotional toll if you don’t learn to master your emotions, and the amount of time and work one has to put in to mastering both the craft and art of trading. Do this, and then after six months, write me again with a specific question. I will do my best to give you a specific answer.

Question:

What is the best way to determine which way a certain currency is moving? I seem to slip up on that all the time. Is it best to look for volatility?

Andre from EURO town

Answer:

Andre, if I were able to answer your question definitively, I wouldn’t because I would be spending all my time trading currencies and not telling a soul about how I could determine which way a currency is going to move.

What I can tell you is that many successful traders utilize technical analysis for determining which way a currency will move. These traders are looking for patterns that determine direction. Generally, true technicians care little for news or facts. They simply want to see the pattern. I gather, from the tone of your question, trading currencies is new to you. So here is my advice—trade currencies on news and facts.

Much like commodities, currencies reflect the “conditions on the ground,” to borrow a phrase from our military. Successful commodity and currency traders deeply understand global economic conditions in the relative timeframe necessary to make successful trades. These would be the “facts.” The “news” however, is what can cause the volatility you referenced in your question. However, without understanding the context (facts), trading on just the news might be dangerous (news comes after the facts), unless you are playing a hunch or a hot tip, which is, well, careless, unless you are a true insider.

As an example, the dollar is weak because the U.S. economy is weak, and the future threat of hyper inflation is real. These are facts. If tomorrow, the news tells us key leading economic indicators point to an abating recession or an economic recovery, then the dollar might see a quick movement toward strength. If you deeply understood global economic conditions, you might very well be prepared to make a successful dollar trade.

Timing and opportunity, coupled with knowledge and experience, is an almost unbeatable combination.

Trade in the day; invest in your life …

Trader Ed