How to Research Positions
Having established just how important getting up to speed with the markets and current affairs is for your forex trading, its time to turn attention to how you actually go about researching different positions. Knowing you have to research is one thing, but know what you’re actually looking for is quite another, and you must have a firm grasp on the concept if you’re ever to get anything out of your time spent trading.
What Are You Looking For?
The type of information you’re looking for from your research endeavours is that which will hint at market movements in either direction for one or more of the currency pairings. That kind of information can be found in a variety of ways, and can be broadly broken down into three main data types that you should be looking for when you’re trying to build up a picture of a potential trade.
The first things you need to know are currency prices, trends, highs and lows, how long price cycles take and how the market has traded in recent history. This is all technical data relating to the markets for the currencies you’re considering trading, and this kind of data, while largely numerical, is essential in helping you make better judgements.
As a simplified example, consider you were investigating a EUR/JPY trade where you thought the market might rise. Technical data of this sort might indicate a rise as being unlikely based on historic highs, at which point you can factor this in to the decision making process and your internal probability calculations before making a trade. Technical data gives you significant hints about how markets might react and where they could be headed, and there are a number of alternative trading strategies that rely almost exclusively on technical data and analysis.
The next kinds of things you might want to know is market data. How are the respective markets for currency in your chosen pairing shaping up? Are the financial underpinnings of each currency solid, or is one more solid than another? How are the currencies working in tandem together as a pairing? Look at the fundamentals of the market for the currency pairing. You need to build as full a picture as possible of what’s going on at the respective central banks and fiscal authorities in order to better understand the backdrop to the ongoing currency markets. This kind of information will help position you most effectively to capitalise on the markets when they do start to trend more obviously.
The third classification of data lies in the geopolitical sphere, where current events and global economic goings on can come to bear on the currency markets. Factors such as oil prices, wars, bailouts, austerity measures, jobs bills – all these announcements, wherever they may happen, can all factor in to determining the direction of trade in the currency markets. This is an ongoing burden of knowledge for the trader, and it’s important that you take care to ensure you’re doing the legwork on an ongoing basis to have as accurate a picture as possible.
So that’s what you’re looking for. Next, you need to know where you’re likely to find it. These must become your most important research destinations and media throughout your time as a trader, and the information and advice you can glean will be essential in building up your trading capabilities, not to mention your strike rate.