Trading in foreign exchange is known as forex trading. This trade deals with buying and selling foreign currencies. Forex trade is not done in a stock exchange, like for example the New York Stock Exchange, during certain hours in a day. Currency trading is world wide, and since it uses telecommunication for trading, the business goes on through out the day, starting on Sunday afternoon and going on without a break till Friday afternoon.
In the forex market dealers located all over the world and working in all the time zones quote prices for the major currencies. The investor chooses a currency and buys it or sells through a dealer. Many of these dealers work online and can be reached through internet. It is possible for an investor to obtain credit for a small sum and thereby give himself a larger capital to trade for profit or loss. This is called, Margin Trading . Investors find Margin trading advantageous because the investor is able to augment his capital with borrowed money.
With his own small investment, now enlarged by the credit he has obtained, he is in a better position to make substantial trades. To be successful in trading in forex one should be able to recognize patterns in the currency market. This is because the forex market shows specific patterns which keep repeating over periods of time across several time scales. Experienced forex traders soon develop the ability to recognize such patterns because they understand how they come about.
Recognizing patterns in forex trading is very much like how a medical student learns to diagnose a disease. Each disease has its own specific and characteristic symptoms. A medical student has to observe and examine the patient in order to collect all the information he needs to make a diagnosis. He would also order appropriate tests to be done to confirm his diagnosis. No student can expect to become an expert in the medical profession by just diagnosing a single patient for a single disease. He has to examine a lot of patients, with all sorts of complaints to become experienced in recognizing the symptoms of any given disease before he can be in a position to quickly and correctly diagnose a medical condition.
Just like the medical student, a trader in forex market will have to diagnose the condition of the market. He can do this by studying information on technical analysis of the market. These books show how certain conditions in the forex market combine to form a particular pattern. Some of these patterns are chart patterns while others are based on recognizing cycles and configurations. All these help the trader identify market patterns and assess or diagnose the market condition.
Justlike the medical student has to become an expert in diagnosing diseases if he is to become a doctor, a technical analyst must become skillful in identifying patterns in the forex market. It is seen that pattern recognition, and solutions obtained through research are two different ways to become trained in forex trading. Traders who wish to improve their trading skills may use different techniques. They may do their own research, use sophisticated tools, collect data or find the best predictors. However, doing a lot of research alone will not help one become a successful trader. A good formula for becoming a competent and successful trader in the money market is to master the many nuances of pattern recognition. Learn as much as possible from the experts in the field, and practice a great deal.
Looking at forex trading from a research point of view is to treat it as a science. As in any science, knowledge is obtained by pointing out new observations and recognizing patterns, but from the perspective of treating trading as a functional activity. Traditionally, a trader trains to become successful in forex trading by learning from experts and practicing diligently so that he can eventually learn to recognize patterns on his own. But because pattern recognition requires a great deal of judgment, it is very difficult to become an expert in it. In the final analysis the difference between a novice and an expert in trading is not just recognizing patterns but in identifying those pattern that have the highest porbability for success..
