Statistical Survey
Tuesday 2 November 2010
Which would you consider more accurate — a survey of five people or a survey of 5,000 people? If the survey is performed in a fair and even-handed manner, the larger sample of information will generally reveal the more accurate result.
The greater size and liquidity of the forex market gives technical analysts a larger sample of information from which to draw. There are many more trades, and much more money changing hands than in any stock market or futures market. The currency market contains more data points, making a statistical sampling like technical analysis more accurate.
Also, the vast liquidity found in the currency market makes it much less likely that insignificant players will disrupt the market and temporarily skew technical indicators, which is common in less liquid markets. One stock trader can easily influence the price of an illiquid stock, but it is much more difficult — and expensive — to exert influence over exchange rates.
For example, imagine a stock that trades an average daily volume of just 20,000 shares per day. If a trader places a market order to buy 10,000 shares of this stock, what do you think will happen? Because this order is equal to 50 percent of the stock’s average daily volume, the price rockets higher, as the available offers are absorbed. In a very real sense, one trader has single-handedly moved the market for that stock.
While this scenario is common in the equity markets, it is unheard of in the currency markets. The sheer size of the forex market makes this type of reaction nearly impossible. In fact, there have been numerous occasions where governments and central banks have tried to exert their influence over currency exchange rates and failed.
In the world of forex, the trader who masters technical analysis and trading strategies can locate profitable entry and exit points. The individual who masters fundamental analysis can anticipate turning points in the markets when economies shift. The trader who understands solid risk management can protect and defend the account against loss in any trading environment.
The trader who masters all three — technical analysis, fundamental analysis, and risk management — is truly a “triple threat” trader.
It’s my sincere wish to help you become the best trader that you possibly can. You can accomplish this by mastering the three most important aspects of trading.
First, learn real techniques, in detail, that can be used to successfully trade this market. That is the purpose of this blog. Learn to identify the current market situation, apply the appropriate trading strategies, and adapt to changes in the market.
Then, learn all that you can about the fundamental aspects of forex. Do not be intimidated by fundamental analysis! A solid understanding of fundamentals is often what separates the good traders from the great ones.
The third ingredient is risk management, which is the one element that all successful traders share. Good risk management will keep you out of trouble and allow you to survive the tough times and gain valuable experience. While the focus of this blog is on technical trading strategies, don’t neglect the other aspects of trading.
The greater size and liquidity of the forex market gives technical analysts a larger sample of information from which to draw. There are many more trades, and much more money changing hands than in any stock market or futures market. The currency market contains more data points, making a statistical sampling like technical analysis more accurate.
Also, the vast liquidity found in the currency market makes it much less likely that insignificant players will disrupt the market and temporarily skew technical indicators, which is common in less liquid markets. One stock trader can easily influence the price of an illiquid stock, but it is much more difficult — and expensive — to exert influence over exchange rates.
For example, imagine a stock that trades an average daily volume of just 20,000 shares per day. If a trader places a market order to buy 10,000 shares of this stock, what do you think will happen? Because this order is equal to 50 percent of the stock’s average daily volume, the price rockets higher, as the available offers are absorbed. In a very real sense, one trader has single-handedly moved the market for that stock.
While this scenario is common in the equity markets, it is unheard of in the currency markets. The sheer size of the forex market makes this type of reaction nearly impossible. In fact, there have been numerous occasions where governments and central banks have tried to exert their influence over currency exchange rates and failed.
The "Triple Threat" Trader
In the world of forex, the trader who masters technical analysis and trading strategies can locate profitable entry and exit points. The individual who masters fundamental analysis can anticipate turning points in the markets when economies shift. The trader who understands solid risk management can protect and defend the account against loss in any trading environment.
The trader who masters all three — technical analysis, fundamental analysis, and risk management — is truly a “triple threat” trader.
It’s my sincere wish to help you become the best trader that you possibly can. You can accomplish this by mastering the three most important aspects of trading.
First, learn real techniques, in detail, that can be used to successfully trade this market. That is the purpose of this blog. Learn to identify the current market situation, apply the appropriate trading strategies, and adapt to changes in the market.
Then, learn all that you can about the fundamental aspects of forex. Do not be intimidated by fundamental analysis! A solid understanding of fundamentals is often what separates the good traders from the great ones.
The third ingredient is risk management, which is the one element that all successful traders share. Good risk management will keep you out of trouble and allow you to survive the tough times and gain valuable experience. While the focus of this blog is on technical trading strategies, don’t neglect the other aspects of trading.
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