Forex Trading and the Role of Intuition

Forex Trading and the Role of Intuition

What is Forex Trading?

The Forex market is a market where foreign currencies are traded. Currencies in the market are traded in pairs, so it is effectively an exchange. After all, in order to buy one foreign currency, you have to sell another. Traders make money from market fluctuations. Their aim is to buy the currency at a lower price with the expectation of its growth. The rise or fall of the price depends on many factors, such as:

  • Interest rate. The interest rate is regulated by the central bank. When it increases, the rate usually increases. Raising the interest rate is a common monetary policy measure when a state is struggling with high inflation. However, at the same time, an increase in interest rates slows economic growth as loans become less available to businesses, which increases the unemployment rate.
  • Prices for raw materials. The economies of countries often rely on the sale of raw materials, and there are several countries in which currency strength is based on the sale of oil and other resources. Accordingly, the growth of prices for these resources will strengthen the currencies of these countries. And the fall in resource prices will, on the contrary, weaken currencies.
  • International trade. Countries whose products are in demand abroad and therefore have large volumes of exports attract money flows to the country, which strengthens the currency.
  • Political situation. The country's monetary policy may differ depending on which party holds more seats in the parliament. After all, each political party has its program for economic development. Some may work better, some worse. Also, the political situation within the country affects international relations, which in turn affects the possibility of trade. After all, unfriendly actions of one country towards another can lead to the imposition of sanctions on it. Which, accordingly, will complicate trade, which in today's globalized world can greatly slow down economic development and weaken the currency.
  • General economic indicators. A strong economy can maintain the value of the national currency at a stable high level without significant problems. In order to know how and when these factors will affect the currency, it is necessary to conduct fundamental and technical analysis before trading. For this, a trader must have certain traits.

What Traits are Essential for Traders?

To make money as a trader, a person must have certain traits and skills that are mandatory to work in this field, for example:

  • Analytical skills, because the trader is faced with a large amount of information that needs to be processed and draw conclusions about further actions. A trader has to work with economic indicators and trading indicators, so these skills are essential.
  • Emotional control is very important because a frequent mistake of Forex traders is that traders cannot stop in time and save profits. Also, in the long term, it will be difficult for an emotionally unstable person to continue trading due to the experience of failure, and the desire to learn and develop in this area will disappear. So Forex trading should be perceived as a job or just a business with a cool head.
  • Discipline. If a Forex trader works independently and not in a company, then it is necessary to be self-disciplined because only regular trading and schedule can get a decent profit at the end of the month. Self-discipline is especially important for self-employed traders because they are not controlled by anyone from the management. It is also useful for the trader to keep records of the profit from each transaction, the use of the strategy, the features of their use, and the results of their effectiveness. All this can be useful in the future.
  • Patience. Some strategies require endurance and patience because the trader needs to follow the change in the rate and wait for the corresponding value. The trader is in tense anticipation at such moments. Calmness during trading does not mean a lack of energy, but most people perceive and analyze information better when they are in a state of calm without unnecessary fuss and emotions.
  • Ability to manage risks. Determining the possible amount of losses in a risky transaction and the probability of failure in a specific transaction. Many traders cannot boast of a good profit precisely because of the inability to take risks into account. The possibility of making quick and big money clouds the mind. And not all traders can handle it.

Intuition is an internal understanding of the market that can complement a trader's analytical skills. But if you think that any person, or a beginner, just starting to trade, will be able to earn sums solely on intuition, then I have to disappoint you. It is unlikely that many people can come into this niche and accidentally make decisions and still make a profit. You can find out how intuition works in Forex below.

Why is Intuition Important in Forex Trading?

In fact, the use of intuition in trading is a rather debatable matter. Some traders believe that it is necessary to rely solely on analysis and factual data, while others leave room for the inner voice.

Probably many of you have heard about medical intuition. The doctor can make a diagnosis only after seeing the patient, without having conducted all the necessary tests.

It would seem that making a correct diagnosis is very difficult, almost impossible. However, this happens often. And this is neither a miracle nor an accident.

This is how knowledge and experience work. When a doctor has many years of practice and faces the same problems year after year, on a subconscious level, he can already notice what is wrong with the patient.

It is the same in other spheres of activity, including Forex trading. When you get knowledge, read a book, or listen to a lecture, you don't always use this knowledge later, but it exists in your memory, and you can answer questions about the book or lecture purely intuitively. Because your brain is already familiar with such information and can isolate the information that once came to it.

Therefore, do not underestimate the power of intuition in Forex trading because it is not just fiction or a coincidence. Knowing what you draw in the process of learning, watching the trade, or the trade itself, can make your trade more profitable.

When making decisions using intuition, you won't always be able to answer why you did the way you did, but that doesn't mean you made the wrong choice. However, when you trade, you should not rely solely on intuition because it is formed by the fact that the trader has absorbed a large amount of information related to this area, and therefore his brain helps him make the right decision precisely through intuition. It is advisable to use intuition when a decision must be made immediately. Our brain is unable to analyze and comprehend all the information we consume because there is simply too much of it. So intuition is the work of our brain at an unconscious level. Intuition can be a kind of synonym for the word experience, but it is worth noting that not all people can use intuition. Uncertainty about our primary decision often leads to the fact that we are wrong. Therefore, to use intuition, it is not enough to have only knowledge and experience. You also need to be able to listen to yourself and be confident.

Conclusion

In the end, we can determine that intuition in the Forex market is not just a coincidence or luck. This is experience and knowledge that are in an unconscious form. Traders use intuition when they already have some experience in the field. Intuition is often used in moments of stress or when there is such a huge amount of information that there is no time for logical processing.

To develop intuition, you need to learn, listen to yourself, be sure of the decisions you make, diversify, and refresh your experience.

Have a good trade

Last Articles
All Articles
What is a Market-Neutral Trading Strategy?
A market-neutral trading strategy is an investment strategy that seeks to profit from both increasing and decreasing prices in different securities while minimizing the impact of general market movements.
Read more