Big Picture Forex Trading - A Long Term Strategy
One method that I've always endorsed for forex trading is trading with the big picture. The big picture takes into account all of the information available for a currency pair.
This breaks down into several areas:
You can't ignore interest rates if you want to trade the bigger picture. When you hold a currency trade for more than a day, you'll notice something called rollover. Depending on the currencies involved and the direction of the trade, you may be paying a little bit of interest or earning a little bit of interest. For the most part, if a country is paying sufficient interest, world traders are buying the currency against weaker currencies, creating a trend.
Tracking the progress of the commanding heights of the economy also known as the Fundamentals goes along with the above idea.
Fundamentals are things like employment, interest rates, CPI, and even politics. While trading the big picture, you need to know what the fundamentals are for the currencies involved.
Technical analysis has many methods when put into practice. If you say technical analysis to one trader, they make thing moving averages, while another market operator may think of MACD if you mention technical trading. When trading the big picture, you are looking for technical aspects to support your trade. If you want to buy a currency pair, you don't want it to be overbought technically. Your big picture trading should have some technical analysis that supports your decision. It helps with the timing and helps you avoid getting in at a bad time.
You may have the right idea overall, but having technical analysis in your favor can reduce your risk.
Like all forms of analysis, Technical Analysis is subject to misjudgments or biases, which can throw off appropriate investing decisions.
One thing I love to do when I don't feel like I have a grasp on what is happening with a currency pair for a day is to step back and look at everything on the weekly charts. The bigger weekly charts can make a kneejerk move on the daily chart look trivial and give you a better feel for what you're analyzing. Take a step back helps to reduce second-guessing.
With these items in mind, you can make strong trading decisions that support positions that you're holding. You should never be making trades just to make them. You should be able to explain them to a third party if you had to. If you follow this rule, it will help you avoid making an "I'm bored" trade. Real trading, especially big picture trading, can be boring and slow. Many traders are brought in and told to trade fast and leveraged, and that is why there are so many failed forex traders.
Big picture trading is about taking everything into account and making an informed decision. In my opinion, it's one of the best trading methods. A branch of hedge funds, known as Global Macro funds takes this approach.
It's also one of the most difficult methods for traders to follow because it lacks excitement and fast payoff. Big picture trading is more about long-term success and staying in the game.