The most important question when trading in forex is when to actually enter the market? You will want to enter when there is an increase in demand for a certain currency. Easier said than done, when exactly this is and how do we keep track.
There are a few different groups trading in forex. Commercial traders are interested in stability and do not speculate. These have such an influence they can create a trend within the market. Non-commercial traders however do specify the income of the market in an attempt to make money.
So when is the right time to enter the market?
Let's look at an example. If a large company was going to invest in something that needed US dollars, there would usually be a bank that would make the purchase for them. The majority of non-commercial traders are blissfully unaware that this is occurring. There are some however who get this knowledge through their contacts and the demand for the dollar increases. When word gets out more non-commercial traders become aware and the demand for the dollar increases again.
By the end of the trading day, the initial momentum produced by the bank would have slowed. The bank tries to make the transaction as subtle as possible in order to avoid panic.
As more people find out about the investment they are buying into dollars. This means more volatility. The greater demand lasts until the bank finishes the job. The trend created is directly related to size of the initial investment.
All of the best traders know not to follow prices but understand whole momentum changes. The first sign of the market moving is momentum changes compared with the key trading times in the market.
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