~ By Tom Cleveland ~
Newcomers to the world of foreign exchange, or “forex”, trading are often amazed at the amount of information that must be assimilated before trading can begin. Abundant disclaimers abound that literally “shout” that forex trading is high risk and may not be appropriate for everyone. “High risk” implies that more knowledge, training, and practice are prerequisites if your intent is to make money at this endeavor. Impatience and inexperience in this market are prescriptions for an early failure.
For residents of Singapore that wish to try their hand at this “art form”, the recommended path is the same as for any other place on the planet. The factors for success are knowledge, experience, and emotional control. Adequate training and practice sessions on free demo account systems, available from nearly every forex broker in the industry, are the first steps on this path. In the process, you will develop your own “step-by-step” trading plan that will guide when and how you enter the market, together with when and how you exit your position. Consistency comes from trusting your trading plan.
Trading plans must also be adapted to the market conditions at hand, which are always changing. Your trading style must also adapt, depending on what greets you each time you prepare to trade. Financial markets today are highly correlated, due primarily to the globalization of commerce, advances in technology, and the speed of the Internet and related telecommunications resources. The chart below helps to demonstrate these correlation realities:
The performance returns for a variety of currencies and stock indices are presented for the past year. Surprisingly enough, the five lines appear to be “dancing” together, some gyrating more wildly than others, but still “mirroring the same directional characteristics. To be an effective trader, you must first assess your domestic market, and then put it within the full global context. Stocks tend to be more volatile than currencies. The Sing Dollar and local stocks have followed similar paths, each to some degree influenced by regional and international events.
The Singapore economy is heavily tied to the electronics industry, which in turn is driven by demand in the United States and Europe. The Sing Dollar, a reflection of the local economy, has fared a bit better than the Aussie Dollar, which is heavily dependent on its export trade to China that has diminished of late. The economic recovery in the U.S. has raised expectations across the board, but presently all markets are “trapped” within tight “choppy” ranges. Ranging markets eventually trend, but no one knows which direction that move might take in the near term.
As a beginner to forex trading, you will want to make this type of assessment on every trading day by perusing the markets and finding the “bias” for the day. Forex trading is about finding future trends, based on locating high-probability setups that may provide an advantage going forward. The goal is to take what the market gives you on any given day by locking into a prevalent trend and then riding it for all it is worth. If you enter a position and the market does not move as expected, then exit immediately. Losses are more a part of the game than you might like, but minimizing their impact is one objective that must be accommodated.
The “choppy” nature of the current market is to be avoided. Trading opportunities are best when volatility is present. Invest the time in practice trading to hone your skills and begin with small trades when you enter the market for real. Have fun and good luck!
Tom Cleveland is a senior market analyst for the team at forextraders.com and has earned an engineering degree from Georgia Institute of Technology and did graduate work in Finance at Georgia State University. Mr. Cleveland’s recent work includes expanding the Forex Traders website with broker reviews for each respective country. Relevant examples include how to find a forex broker in Singapore and other guides for Asia.