Foreign currency trading has all the prospects of becoming a lucrative and satisfying career. But forex trading is not so easy as most people think it to be, though entering and placing your first trade may be simple, but becoming a profitable trader is a different thing altogether. For this you need to have the right knowledge and techniques so that you can understand and know the right time when to enter or exit a trade, as these are the two vital aspects that every successful trader must possess in order to make money.
In the forex market there are two kinds of analysis. They are the (i) technical analysis and (ii) fundamental analysis. It is normal for the traders to divide themselves into the technical or fundamentalist group. Each of the groups has its own important tools.
In the technical analysis group the forex trader bases their trading on analysis of the charts and the number of indicators derived from the plots of price swings and patterns. On the other hand, the fundamentalist traders base their trading by and large on the fundamental numbers and economic indicators of the economies of specific countries. Despite the fact that even if they are divided, both have a tendency to harmonize with each other to some degree.
Traders of the fundamentalists group should focus on the situations and events taking place but never let the proceedings involved greatly influence their trading efforts. This is somewhat risky as often unprecedented and chaotic events happen in the world, even as the trading is going on. The media (internet, print or TV) can often distort or magnify the events which impacts the trading significantly. This results in exaggeration and fast dispersal of the news about the series of adverse events taking place which increases the atmosphere of apprehension, uncertainty and insecurity in the trading world.
And anxious traders are not prone to make the most excellent trading choices since they get influenced by fear and emotional reactions instead of rational and smart decisions.
To be more specific some of the few unfavorable chaotic world events such as the political upheavals or corporate scandals, natural disasters like earthquakes, tsunamis, floods, hurricanes, droughts, and wars can cause great disturbance in forex trading.
In a nutshell, all forex trader needs to be totally certain that their system of trading has in-built safe guards (stops, limit orders) for preventing major financial losses in their trading account in case any of the adverse events ever takes place. They should also be practical as many of these events will surely occur in the future.