How To Approach Your Trading Day
Today, we will go through the processes that constitute the correct approach to a typical trading day for a forex trader.
The most important component of a typical day in the trading business is to first understand the sentiment of the market. A trader who understands what the prevailing market sentiment or feeling is will be able to pick out trades for the day most likely to win.
Understanding market sentiment is all about information, and this information comes from banks and other major trading organizations, who publish market commentary, research papers and the market outlook for a day or the week. Sadly, many traders simply ignore these nuggets of gold and get muscled out of the market. The whole essence of this site is to get readers to stop thinking and acting like retail traders and start doing what the smart money traders are doing. One of the things that smart money traders do is that they pay attention to information. A particular trade I took on the EURUSD sometime this year stemmed from a 15 minute interview a currency analyst from a Nordic Bank gave on Blomberg TV two weeks earlier. When the fundamental play he forecasted then played out in the market, it was a piece of cake and very easy pips for me.
What Information Should You Look Out for Daily?
The following pieces of information are necessary for you to get an idea of market sentiment as part of the correct approach to a trading day:
a) Action Insight
b) Daily Fundamental Analysis Reports
c) Calendar of Economic Data
a) ACTION INSIGHT
You need information about what the buzz in the market is. The best approach is to restrict yourself to a maximum of 2 sites when looking for a source of Forex research updates and daily market commentary. A good place to start is on www.dailyfx.com or actionforex.com. The reports on actionforex.com are updated twice a day; once before the European open and before the US open. If you want to know which news would probably move markets, this is where to get the information.
The action insight will tell you what the markets think is relevant at the moment, so always look at this stuff before you start any trading activity for the day.
b) DAILY FUNDAMENTAL REPORTS
Fundamental analysis attempts to predict the price action of a currency pair based on government policy and the indicators listed on an economic news calendar within the framework of global business. Fundamental analysis is complex because it is all about how traders look at the market. Sometimes, a news release which is inherently bad may actually cause a currency to soar if the numbers are seen to be an improvement on the previous numbers are, in other words a sign of improvement. This is why it so important to study fundamental reports on several third party websites and from business news stations like Bloomberg TV or CNBC so you get an idea of what market expectations are like. This will give you an idea of the market sentiment concerning the various possible outcomes of a news release.
c) THE NEWS RELEASES
You need to know what news is to be released on the trading day in question. A news release can totally reverse a market trend and cause an existing position with unrealized profits to to be totally wiped out in seconds. If you have existing trades on a day when a major news release is scheduled, close all the positions and only re-enter the market when the news has been released and the markets have formed an opinion about the currency pair. Intra-day traders who use technical analysis should trade between 1700hours GMT and 0600hrs GMT, which is outside the window of when the impact of news releases from the London and New York sessions will be felt in the markets.
These three steps mirror the correct approach to a trading day so that the trader starts off his trading on the right foot.
