Forex Basics: When To Open A Position Part I

FOREX BASICS: When to open a position part I

Now, it's all very fine to know how to open a position and thus how to trade currencies, but one of the questions is of course WHEN to open it. A lot of traders even see this as THE question and are focussed on it throughout their trading career. However, If you want to become a successful trader there are other factors that are much more important. Trading is a very psychological game, a battle, in essence, against yourself. And to master that game you need to be able to look further than the question of "when is the best time to buy or sell". But you do need some knowledge about the markets of course, so we'll go into that now. Psychology comes later.


News & Rumors

An important saying in the stock market is: 'Buy on the rumor, sell on the news.'

An example of this:
statements of the various heads of the central banks of the economic blocks (Eurozone, USA, Great-Britain, Japan) are watched very carefully for clues about what they might do with their respective interest rates. The European Bank president for instance, gives an official speech every month that is broadcasted by the ECB. During this speech, the EUR/USD often experiences a lot of volatility. If he sounds 'hawkish' (meaning 'we want to make the Euro stronger') the EUR/USD often surges, even though the ECB has left rates unchanged. Because the market factors in that the ECB might raise the rates in the near future. .

Everything is about news and rumors when it comes to currencies. It's one of the last true bastions of capitalism, because the markets move freely and are very transparent. And since markets are moved by people, news and rumors play a very important role. In our Forex help section we point you to some important economic news events, so you always know what goes on in the markets. If you like short term trading (keeping a position open only for a short while, like a couple of hours or less) these economic news events are very important.


What positions to open, in other words: 'What shall I buy?'

Like it is with everything in life, the dumbest thing you can do is acting without thinking. You didn't get your brain for nothing, and without it you'd still be swinging from the trees, so act like you got 'em and think before you do something. You might think we're overstating this, but 95% of traders are loosing traders, and this is one of the reasons for it.

In poker the saying goes: 'If you can't spot the sucker within half an hour you ARE the sucker.' In forex the sucker is the guy that thinks everything is random and he can trade solely on his instinct, going with the flow.....you know.

So don't be that idiot that thinks he doesn't need to educate himself to become a good trader because he learned lot's of other stuff 'on the fly' as well. Read these articles, read some of the books we recommend and discuss your trading in our forums. That is, if you're really set on becoming a successful, wealthy trader.

So first think about which position(s) you want to open and why. Are there reasons to expect a dollar rally (dollar going up). Has Germany (the most important economy in the Eurozone) just published figures that were far better than expected? Are there a number of sources speculating about a rate hike from the Fed (Federal Reserve, American central bank; a rate 'hike' means increasing the rate, as opposed to a rate 'cut'). Whatever works for you is fine, as long as you have some idea about WHY you want to open a specific position.

In the beginning this all might seem pretty tough to do, but so was learning to read and look where that got you. :)




TIP: Don't start trading for real money right away. Trading for play money will not only show you how the platform works but also make you more comfortable with opening positions and trying some new strategies. Every mistake that you can make for free is one that you don't have to make when trying for real. So we strongly advise you to first read your way through our beginners course and only after that start trading for real money.