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Best Forex Tip Ever

Best Forex Tip Ever: Put Yourself In the Other Guy’s Shoes

Want a tip? Don’t eat yellow snow.

Want another tip, this time about forex trading? Put yourself in the other guy’s shoes—every trade.

Here’s a primer for every forex web trader on how and why to go about doing that:

See the Fear In Their Eyes

All forex traders and forex brokers experience fear. The currency markets are so volatile, and the leverage employed by currency traders so outsized, that no matter how experienced you are, it’s natural and right that you should be scared of what might be about to happen.

In fact, better forex traders are often more fearful than their less talented counterparts. The FX markets are like the ocean: being a good swimmer does not mean you’re safe.

You can capitalize on this fear if you can see it. And you can, through the use of forex charts, other forex tips and technical analysis, see this fear taking hold of the market.

For example, the infamous short squeeze. A short squeeze begins when the majority of market participants are short a currency pair and that currency pair starts to move higher. As the currency pair rises further, it becomes nervous time for the short-sellers…

And feeding frenzy time for you, if you’re seeing the fear in their eyes. Because once that currency pair rises above a key technical level—for instance, above the 200-day moving average—shorts will scramble to cover their positions by buying the pair long.

If you have taken a long position ahead of that panicked scramble, you will be sitting pretty when the fearful hordes fight like mad to buy the hot potato (at your price).

This Little Piggy Wants Profit
On the other side of the “in the other guy’s shoes” equation, consider the reality that in the currency markets, people are always, always, always looking to book profits. In contrast to the stock market, where “buy and hold” is a trusted mantra, FX market participants are much more focused on buy and book profits, then rinse and repeat.

Knowing that traders will be looking to book profits on any significant moves—and even many insignificant moves—is one key to not overpaying for trending currency pairs.

For example, the EUR/USD is known to experience “backing and filling” action as the pair trends one way or another. That is, the EUR/USD will “back up” as traders who were on the right side of a recent move start “filling” their orders to take profit.

When you are seeking to enter a position, in the EUR/USD or any other currency pair, you can get a better price by realizing when other traders will be looking to exit that position. Traders are ready to exit when they’ve achieved profit.

The Biggest Shoes

Some online forex brokers, such as FXCM, claim to have accurate information about buy and sell sentiment among major currency market players.

Our view is that this information is, generally speaking, highly suspect, because major currency market players will go to any length to prevent that information from becoming publicly available. Can you imagine a bank telling FXCM what currency pairs it wants to buy, in what quantities, and at what prices? Why? So the bank can lose money?

The fact of the matter is that market sentiment in the foreign exchange markets is not discernible. There is no central exchange that monitors buy and sell orders, and you will never, ever, ever know for sure what market-moving players are doing.

However, not knowing is no excuse for not making educated guesses about what the big guys are trying to do here. Rest assured that they’re trying to do something at all times.

Remember that the foreign exchange markets are not merely casinos operated for the amusement of online currency traders. There is real, really important business—mergers and acquisitions, for instance—that greatly depends upon currency exchange rates.

A government, for example, may need its currency to price at X level during X month. If so, it’s likely that government may be willing to take steps to fulfill that need.

Enlarge your viewpoint as a forex trader by putting yourself in the other guy’s shoes even if those shoes are big shoes to fill—for those giant footsteps often form a path to profit.


Important Forex Information

The most important step in currency trading is finding the right broker; our forex experts can help. See our
reviews of forex brokers for more information.  arrow

Contrary to what you might think, a margin call in the forex markets can be a very, very good thing. Get tips on
forex margin calls.  arrow

Avoid exiting currency positions manually rather than setting a stop-loss order that automatically triggers a sale. Read about
the problem with manual exits.  arrow

You can capitalize on fear if you can see it. Through the use of forex charts and technical analysis, you can see this fear taking hold. Learn to turn fear into forex profit.  arrow