when it comes to investing, you would normally have to look at economic fundamentals, and maybe some moving averages to help get an idea of where the market is trading. however, when it comes to trading/speculating, some of that may not be as important unless something big is happening in the economy, for example the burst of the recent Chinese. Many novice traders have this belief that when it comes to trading it is all about predicting the markets, and the fact of the matter is that it is not about predicting at all; trading is about looking for looking for possible opportunities in the market place, it is not about trying to guess where the market will be in the following days, weeks, or even months. Moreover, for sure there are indicators that can help you identify the market sentiment, but very often those indicators don't work in your favor. As you will see on this website, there are many charlatans that claim to predict the market with accuracy. take a look at the example i have set up on this chart. the red zone is the risk/loss if i where to take the trade, and the blue zone is the potential reward. Now having said that, this is how i would play this potential trade if it were to move in my favor: if the price of the Euro were to move above 1.12667 i will buy X number of Euros, and if my order does get filled then i will place a stop loss order at 1.11479 (this stop loss order will take me out of the trade for a loss that calculated ahead of time using a strategy known as position sizing: capital loss divided by the difference between my entry fill price and my stop loss). after my placing my stop loss order, i go ahead and place a limit order that will close out my trade for a profit at 1.14372.
Having said all of that, in real life i would never place this trade for a number of reasons. number one, the reward to risk ratio is very low (1.44:1); i want to find a trade that is greater than 2:1, so that way i can stay longer in the game because very often you will come across a string of losing trades. number two, this trade would be moving contrary to the major trend that has been taking place in the last 9 months. number three, the euro is trading in a sideways market, which means that there is some indecision taking place in euro according to the 10 day moving average(red), 20 day moving average(green), and 50 day moving average(blue). how can i tell you may ask? every couple of weeks the averages cross on top of one another, while in a bearish market you will find the averages are constantly moving and not crossing; if you want to have a longer string of winning trades you want to move with market and not against it.
Having said all of that, in real life i would never place this trade for a number of reasons. number one, the reward to risk ratio is very low (1.44:1); i want to find a trade that is greater than 2:1, so that way i can stay longer in the game because very often you will come across a string of losing trades. number two, this trade would be moving contrary to the major trend that has been taking place in the last 9 months. number three, the euro is trading in a sideways market, which means that there is some indecision taking place in euro according to the 10 day moving average(red), 20 day moving average(green), and 50 day moving average(blue). how can i tell you may ask? every couple of weeks the averages cross on top of one another, while in a bearish market you will find the averages are constantly moving and not crossing; if you want to have a longer string of winning trades you want to move with market and not against it.