If you are struggling to master the financial markets understanding this one concept could be enough to help you start thinking the right way. This article is for the very novice trader. We were all there once, but many people like to forget that. However, it can be a horrible place to be. You are hopeful about trading, see lots of successful traders and want to become one. Your trading though is a disaster.You may be having huge equity swings followed by oscillating feelings of hope and despair. Well, if that is you its maybe that you haven’t yet understood what is fundamentally driving the markets
Strong vs the weak
In your trading look at trading markets with a clear bias. So, let’s give an example. Say the Bank of England came out and said, ‘ the UK is recovering so quickly we expect to raise interest rates four times in the next 12 months’. Now imagine that the ECB said, on the same day, ‘ the eurozone is recovering so slowly that we will cut interest rates even further this year’.
Now imagine both announcements were a surprise.
This hypothetical example would open up an obvious sell bias in the EURGBP.
- The EUR is weak, due to the ECB’s outlook
- The GBP is strong due to the BoE’s outlook.
This is what you want to do when trading. Pair strength against weakness. Understand this principle and you are 50% of the way there in your trading.