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Foreign Currency Exchange Rates Rules for Trading

Foreign Currency Exchange Rates Rules for Trading

There are a number of rules that most successful traders keep in mind when they are trading.  Some of these rules are more along the lines of guides than strict steps that need to be observed.  When you keep these rules in mind you should be able to trade on the market better and understand the market better.

Foreign Currency Exchange Rates Move in Patterns

When you are analysing the movement of foreign currency exchange rates you will find that there are distinct patterns that emerge.  These patterns are used in technical analysis to determine what the market will do.  Once you are able to identify a pattern you can use historical data to determine which way the market will move.  There are certain trends that follow certain pattern and you need to be aware of what these are.

What Goes Up Must Go Down

The foreign currency exchange rates take a turn up or down they will return to the previous position at some point.  Sudden trends which are driven greatly by market sentiment will reverse and come back to a certain level.  The reason behind this is that the trend will become overbought or oversold at some point.  The best way to determine these overbought and oversold levels is to look at market sentiment.

Most trading platforms include some manner of market sentiment in them.  However, this market sentiment is generally restricted to the trades that are done on the broker’s platform.  While this is a limited look at the market it is also a good way to judge market sentiment.  When the percentage of traders buying of selling a pair reaches high levels a reverse will be coming.  This reverse is based on the fact that there are no more traders left to push the trend.

Emotions are Often Stronger than a Trader’s Resolve

All new traders are told that emotional trading is something you need to steer clear of.  However, this is often much easier to say than to do.  The reason why this is a common warning is the strength of emotions when you are trading.  Most of the time, the emotions you face can be stronger than your resolve not to act on them.

The only way that you can limit the control of your emotions is to have a good trading plan.  When you have a good trading plan it may be easier to stick to it.   Of course, you should also accept that there will be times when you follow your emotions even if you don’t want to.  You need to accept this much like you have to accept that you will lose money on some trades.

Traders Like Bull Markets More

More traders will trade on a bull trend than a bear trend.  This is based on the fact that humans are trained to see an uptrend as more positive than a down trend.  Even when you understand that down trends can be as profitable as up trends bull markets seem to hold more promise than bear markets.  The only way that you can overcome this cognitive bias is through training your trading mentality.  This is a very hard thing to do and most traders are not successful at it.

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