Introducing Currency Speculation (FOREX Trading); A Way to Grow Wealth

How trends are formed in currency speculation

Introducing Currency Speculation (FOREX Trading); A Way to Grow Wealth

The fundamental truth about currency speculation is that the trend of price holds the key to profit and losses. Identifying well-defined trends and trading with that trend leads to profits. On the contrary, trading against the well-defined trend leads to losses.

When you look at the picture of price and the patterns they form, do not lose sight of fundamentals that forms the basis of the formation of those price patterns and pictures. Currency speculation is a battle between BULLS (Buyers) and BEARS (Sellers). Trends are formed when one group over-powers the other group over a period of time.

Furthermore, currency speculation form trends that tend to maintain balance between Demand (Buyers) and Supply (Sellers).

CURRENCY SPECULATION: Uptrends and downtrends

In currency speculation, traders need to understand the reality of uptrends and downtrends. The currency market is a mass of people (Buyers, Sellers, and Undecided traders). See it as a battleground where each participant tries to take away money from the next participant by applying methods, tools, or software.

The price of a currency pair is an agreement between buyers and sellers. This price is a momentary agreement between buyers and sellers and this agreement changes with each tick in the price you see on your charting platform or quote screen.

The whole truth about Supply and Demand

Market trend up because there are more Buyers (Demand) than willing Sellers (Supply) while market trend downwards because there are more Sellers (Supply) than willing Buyers (Demand). The uptrend will gather momentum as long as there are more buyers willing to buy at a higher price.

In essence, in currency speculation, an uptrend will extend as long as there is no additional Supply to balance Demand. As the uptrend extends, there comes a time when willing Sellers (Supply) steps in to match Buyers (Demand) and slow the momentum of the uptrend. The uptrend will come to an end when Demand is satisfied.

When the uptrend finally attracts more Sellers (Supply) than willing Buyers (Demand), you find the market will turn down until it finds a level or price that will attract more willing buyers (demand).

This process is not always as smooth as I stated above but happens in fits and starts and the technical analyst sees this on a chart as patterns that repeat. In case you did not know, a technical analyst is a person that looks at a price chart and tries to identify support and resistance levels that enable him to make objective entry and exit bets with defined risks.

CURRENCY SPECULATION: Support and Resistance

Currency Speculation is a contest between Buyers and sellers. When price falls, it falls to a level where it falls no more but bounces up. This price level supports the currency pair and it bounces.

This support level is where sufficient Demand (Buyers) enters the market to satisfy Supply. Support and Resistance

Inversely, when price rises, it gets to a level where it cannot rise further but begins to fall. This price level resists the currency pair and it falls. This price level is where sufficient Supply (Sellers) enters the market to satisfy Demand.

These levels are not necessarily cast in stone and from time to time, price trends move up and down looking for balance points.

What does a daily candlestick represent?

Price is a momentary agreement between buyers and sellers. In currency speculation, there is a price candlestick for monthly, weekly, daily, hourly, or intraday charts. I use the Japanese candlesticks in my chart and I will be explaining the meaning of price on the daily chart. I will focus on the daily chart but the meaning is the same for other time period.

  1. Currency speculation and priceOPENING PRICE: The daily opening price represents the price the market opened for that trading day.
  2. HIGH PRICE: The high price is the maximum power of buyers during the day. It is the maximum price willing buyers paid for the currency pair before sellers stepped in to halt the rise.
  3. LOW PRICE: This represents the maximum power of sellers pushing price down during the day.
  4. CLOSING PRICE: This is a revelation of the outcome of the battle between buyers and sellers for the day. This price tells you who won the days battle. If the price closed higher than its opening price then, bulls won the battle for the day. If the price closed lower than its opening price then bears won the days battle.

The closing price is very important in currency speculation because the settlement of account takes place at the close of each day.

Finally, to succeed in currency speculation, you need to work hard, exorcise yourself of the demon called impulsive trading and play the game from the defensive side.

With this post, I have revealed to you how the FOREX market works. It’s now up to you. Good Luck.

 

Written by:

Charles Onwugbene, a Currency Trader with onwugbene.com


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