Forex Trading: When to Sell and When to Buy
May 24, 2017
Forex Trading is an activity that can present great earning opportunities but also dangers. It is not uncommon for a novice to approach Forex Trading thinking that brief and sloppy training, as well as a certain spirit of adventure, are sufficient. For this type of beginner, the clash with reality can be difficult and accompanied by the loss, total or partial, of capital.
To earn in Forex Trading, knowledge, study, intelligence, and cold blood are necessary. According to some, however, in the end it all comes down to one ability: being able to understand when to sell and when to buy. Obviously, reaching this awareness is neither easy nor quick... But some general rules can be stated. It all depends on the approach that lies upstream. The choice is often between two alternatives: follow the trend or look for the breakout?
Following the Trend
Following the trend, more commonly known as trend following, means operating by "trusting" the direction taken by the market. Obviously, it is not a conditioned trust but the result of a careful price analysis. In any case, when following the trend, you buy when the price is in a positive trend and sell when the price is in a negative trend. That's it.
The difficult part, as already mentioned, lies in understanding how stable and reliable a trend is. To do this, it is possible to use indicators, moving averages, or even engage in the study of patterns (graphical analysis).
Looking for the Breakout
Obviously, "looking for" the breakout is an improper expression, as it arrives regardless of what the investor can do. Obviously, if the investor is institutional and authoritative, and has an immense capital available (e.g., central banks), the breaking of the trend can also be directly stimulated. Clearly, this is not your case.
In any case, going against the trend is difficult because understanding when a price will turn around is more challenging than recognizing the existence of a current trend. In some cases, this is more predictable, namely in the vicinity of a fundamental external event. Think of a shocking political announcement, unexpected data on economic growth, an unexpected decision on interest rates.
In this case, you buy when the event, or rather the market mover, turns out to be more positive than expected. You sell when, on the other hand, the market mover turns out to be worse than expected.
