Forex Trading And The Importance Of The Environment
- Author Vic Noble
- Published January 24, 2011
- Word count 567
In this article I want to discuss the problem that a lot of traders bring on to themselves by not being aware of "environmental" considerations.
When we speak about the trading environment, we’re talking about the issues and developments that can affect currency price movement that are very important to be aware of.
One of the things that can be a great clue to currency directions is the condition of the US dollar. Note that I said ONE of the things—not the only thing, and in fact the US dollar may react differently in different market conditions.
But one factor that you should consider when you’re trading the forex markets is the action on the US dollar index, especially if you’re trading a US dollar cross pair. The idea here is that if the US dollar index has reached its 5 day Average Daily Range at or around the same time as other US dollar based pairs are reaching their 5 day Average Daily Ranges, it adds strength to the trade.
Specifically, we use a 5 day Average Daily Range (ADR) for a day trading indicator, to help us gauge whether or not a pair has moved to an extreme or not. There’s no magic in using 5 days—it just seems to pick up any sudden volatility changes more quickly that longer time periods.
So if you think about his, when the US dollar index reaches its 5 day ADR, and other currency pairs are reaching their 5 day ADR’s, you could say the these pairs are reaching extremes. We could expect them to find a top or bottom, and then look for one of 2 things: a place to take profits on an existing position, or a counter trend trading opportunity.
To further help you decide on when a pair might be exhausted, it is very useful to determine if that pair has bumped up against any higher time frame support or resistance price levels. If so, and the price of that pair has also reached its 5 day Average Daily Range, there’s a very good possibility of an imminent price reversal, or at least a price stall.
As with any indicator, I would strongly caution you NOT to use this information "stand alone". You should always consider other factors when you look to take on short term trades like this. And one very important factor is the market "environment".
The market environment refers to things like global factors, the market reaction to fundamental news releases, the condition of the equity markets, etc. There is a relationship between the aforementioned factors and the movement of currencies. Understanding this can greatly enhance your chances of success.
So, together with the market environment, I hope you can see that the range that the US dollar index has traveled during a trading day can have a direct relationship with the movement of currencies.
In my experience as a long time trader and forex coach, these environmental factors are not often understood by most traders, so I would encourage you to at least take a look at them for yourself. Notice things like the movement of the currency prices in relation to movements in the stock markets. This awareness can really be a big help to your trading results!
I hope this article has at least made you think a bit about these environmental considerations.
All the best,
Vic Noble
After more than 30 years of trading, 5 1/2 years as as a futures broker, and a personal forex coach since 2006, I've had a unique opportunity to see what separates winning traders from losing traders. I've just loved helping so many people achieve success, and I know I can make a positive difference for anyone. http://www.forextradingandeducation.com/wp/free-fx-training/
Article source: https://articlebiz.comRate article
Article comments
There are no posted comments.
Related articles
- SCOFI: Pioneering Venezuela’s Petroleum Industry for Over 65 Years
- To Understand Risk, Start By Asking What You Don’t Know
- How To Make Money On Binance: A Full Guide
- Airbnb Investment 101: Tips for New Hosts in Australia
- Indian Gold Demand Rebounds During Important May Festival
- The Investment Terrain in Crypto, Blockchain, and Web3
- Exploring Bitcoin: Corporate Giants Embrace the Cryptoverse
- The Significance of Static IP Address for Trading
- TYPES OF FOREX REGULATIONS
- Weekly Events: Avalanche & Chainlink Collaboration, CommEx Closure, And More
- Assani Elolo Ronaldo - How Bank Instruments Facilitate Gold Deals
- Crypto News: Mempool Solana Shuts Down, Police Integrate Cardano Into Their Work, WhiteBIT And FC Barcelona Launch New Course
- Is Crypto Entering 2021 Vibes?
- Bitcoin Updates All-Time High In Momentum Amid Its Scarcity
- Analyst Announces Bull Run Start, Cites Stock-to-Flow Strategy
- Weekly Crypto News: Telegram Pays Toncoins, WhiteBIT Is Now TradingView Broker And More
- undetectable banknotes
- Unlocking Financial Success: Why Successful Portfolios LLC is Your Best Advisor
- Are EVs a Threat to the Republic?
- A Deep Look Into Binance: Can It Really Be Trusted?
- Ledger Live - Most Trusted & Secure Wallet - Ledger
- Decoding the Future: Navigating the Crypto Landscape
- Don't Cry for Me General Motors
- Investing in exponential growth stocks: what can you choose
- Leveraging ChatGPT AI for Smarter Stock Market Analysis and Investments
- Shib, Doge, and Pepe Have a New Competitor: The Rise of $FUFU Token
- Unlocking Wealth: The Power of Apartment Syndication in Real Estate Investing
- 6 Reasons to Invest in Bitcoin
- Blockchain and AI Convergence: A New Era of Innovation
- Financial Planning for Small Business Owners: Tips for Success