Welcome to the Undergraduate level freshman. It is an admirable job you have done to get to this point. You only have four more levels to go through until you are done with all this forex education and you can get into the forex trading.
FX online has revolutionized what the markets are like and you will have to change with the times to stay relevant. That is why we are going to learn about some very important things about how the markets sway and what you can do to stay ahead.
In your forex tracking, you will find that most of the things you have learnt here are not useful unless you can use them in an actionable way by knowing what to do and when.
When you are a forex trader, you will need to know that market behavior is directly dependent upon some factors, opinions, views and ideas of the people embedded deep in the currency trading market.
As much as it is decentralized, the forex market is not immune to what people know and say. If you combine all these feeling, including yours as trader in the foreign exchange market, you get what we call market sentiment and that is where this undergraduate level is going to start.
You will go through these three main topics:
- What is market sentiment?
- How trade based on the news.
- What is carry trade and how do you do it?
We are going through a summary of what you can expect to learn in each level that you will go through in this level.
Under this topic, you will have to go through several sections. The biggest part of this section is something we call the Commitment of Traders Report. The COT is published every Friday at 2:30 pm EST by the Commodity Futures Trading Commission.
It provides a way for people to understand market sentiments by looking at how the biggest players in the market have performed.
Under this section you will go through the following things:
- Understanding the Commitment of Traders Report (also known as COT)
- The ways you can use to find the COT report
- How you can understand the COT report once you have it.
- How you can use the COT report in your trades.
- The methods you can use to pick the tops and the bottoms based on the COT report.
- A system of creating your own COT trading indicator.
- How do you go about interpreting the COT report?
As you will come to learn, the COT report may bring in new investors. It is not to be depended upon as an accurate indicator for all trades. In FX online trading, you should always be on your toes to make sure that you know everything and the COT is a very important part of the knowledge that you will need to have.
Trading the News
So, now that you have done the whole COT thing, you will move to news, how it affects the market and how your trades can be based on the news and what it says. Just like the stock market, the FX online market depends on news as well sometimes.
You will find something happening in the country that hosts a certain currency and that could affect the way that the currency will shift.
Now, before you go about looking for information and obtain it before it is announced to everyone, you will be caught and charged with something that is called insider trading. That will get you jail time.
However, if the news is announced to everyone, then it is fair game and you can do the trading without worrying.
News plays a vital role in all this because you must get it early as it comes out for it to be any good. News is the fuel that keeps the forex market going. Never ignore it. You may have the best online stock broker for beginners out there but without the news, you may lose money.
Under this section, you will learn the following things:
- How to be very careful when trading the news.
- How do you determine the kind of news releases that you should trade?
- The 2 major ways to trade the news. (either by having a non-directional bias or by having a directional bias)
- The best way to trade the news but with a directional bias
- Using the straddle trade strategy to trade the news
As you will find out, trading the news is done using either the directional or non-directional bias. These two major facts are what you will be focusing on in your forex education. In this section, it is advisable to note that to become a great trader does not mean having the best forex broker but knowing the economic indicators so that the news makes sense to you as actionable or not when you see it.
When there is no activity in the forex market for a long time, there are ways you can still make money. Most of the forex traders are not aware of this. This method of making money that is used by many of the best traders in the world is called ‘Carry Trade.’
The way this works is a little complex but the short version is that you sell or borrow a financial instrument with a low-interest rate and use it to buy a financial instrument with a higher interest rate.
With this method, you end up making more money in the instrument that you bought and paying less money on the one that you sold or borrowed. The profits come from the interest rate differential.
Under this topic, you will learn the following things:
- The specifics of what a currency carry trade is
- Understanding when it is advisable to do a carry trade and when it is not.
- The criteria and risk of carry trades.
This is the last topic that you will have to deal with in your freshman year.
So, buckle up and get started on it.
Trading the News