How do you tell which direction the Forex market will trade on a daily basis? If we all had the answer to that, we could all make a living in the Forex market. The fact is there is no crystal ball that will reveal that vital information to you. However, there are ways you can improve your odds of being on the right side of your daily trades. The ideas presented here should help you improve your Forex trading if you apply them sensibly.
Never Trade the Open
No matter how you feel about which way the market will go on a particular day, never trade the open. The open is always unpredictable and presents some of the highest risk of the day. Things can change overnight that influence the Forex markets the next day.
Give the market a chance to settle in, or at least to prove that the direction it is going is a solid trend for the day. Traders jump into the market on the open, and they often get out of the market at that time, so there may be a tug-of-war going on. Once the winners -- the bulls or the bears -- have taken over, you can make a smarter decision about the direction the Forex market will trade.
Look for Previous Reversal Days
Two previous reversal days may be a telltale sign of the market sentiment. In other words, if the price of a pair has been steadily going up and then closes lower for two consecutive days, it may be an indicator that it will go down again on the third day. For example, a close of 93.50 three days ago, then a close of 92.50 two days ago, then a close of 91.50 one day ago, may lead to a lower close again on the present day.
Watch the Fundamentals
Fundamentals is the news that drives currency pairs. Reports come out nearly every business day, but some very significant reports come out a few times a month. For example, the first Friday of every month the jobs report is released. This can have a great impact on the market. After about one-half hour after the report is released the market will settle into the direction it will likely go for the rest of the day. That is the time to make your trade.
These tips that may tell you what direction the Forex market will trade on a daily basis are not chiseled in stone. Nothing in trading is. The best thing is to always use caution and good money management when trading. Additionally, you should always use a practice account when testing new ideas. Once you have mastered the idea in a test account, you will have a greater chance of being successful in a live account.
For more tips and strategies, be sure to check out the other items in Bright Hub's Collection of Forex Trading Guides.