When one trades the Forex Market one’s Forex trading strategy has to do with small and medium market moves of the day. Forex trading software is designed to read the moves of the Forex market and give the Forex trader a much better than average chance of making money by buying or selling one side of a currency pair. Underlying the market moves and corrections that allow one to make money with a Forex trading strategy is the question of whose money in any trading pair will eventually be worth more.
This seems like stating the obvious. However, it’s not just the currency trader working with a given currency pair that moves the Forex market. An Australian ship owner paying in dollars to have a ship built in China is very interested in the eventual state of the USD/AUD currency pair while the ship builder will be more interested in the state of the Yuan versus the dollar. A Japanese company paying Saudi Arabia for oil in dollars will be interested in the eventual state of the USD/JPY currency pair.
Big players often hedge their bets by buying or selling within a currency pair as part of a Forex trading strategy in order to protect themselves against loss caused by a shift in the relative value of the given currency pair. Banks will intervene in the markets favoring one side of a currency pair or the other.
It’s the big money and the state of nations’ economies that drive the eventual values within all currency pairs. It is the psychology of where the value of money is going in a given nation that drives currency pairs. The Forex trading strategy of trying to anticipate where a given currency pair will be is affected by that psychology about the value of money, purchasing power, and eventual power of nations.
Forex trading in the USD’s various currency pairs is often tied up in guessing where the economy of the United States will be in a few years. Big money trying to hedge bets will sometimes take the Forex market up or down with no apparent Forex trading strategy as seen by the day trader. However, for the long term a particular buy or sell of the US dollar may be a perfectly sane Forex trading strategy.
The long term investor is interested in the eventual value of money while the day trader is interested in increments of the day.
Regarding the eventual value of money some of us can recall when 90 percent of the world’s gold reserves were stored in Fort Knox Kentucky. The economic power of the USA compared to the devastated economies of most of the industrial world was phenomenal. That situation was never going to last. Much of the bleating about the loss of US buying power as the dollar slides chooses not to recognize the fact that people all over the world are willing to work for a little money. Those with less are willing to work for less to get a start and those who are well to do will pass on low paying jobs.
India and China with their large, lower paid, labor pools will catch up to Japan, the USA, and Europe in industrial production, technology, and wealth. The relative value of the currency pairs represented here will reflect that. The question is, how fast?
The day trader still trades increments. However, an appreciation of the big picture always helps you be there when a big player starts a big move in the Forex market.