It is often said that success comes to those who embrace change. Successful entrepreneurs, for example, create new products and services that meet ever-changing customer demands.
The old saying, “The only constant thing in life is changeIt is no less true in trading. Of course, adapting to change is not easy, but as a forex trader, your job is to be flexible.
Think of market themes as theories that traders develop to understand what is happening in the markets.
Of course a theory can only be good if it really reflects market trends.
If it was just based on one’s biases, you might as well be trading with your eyes closed.
So, how do you stay on top of all the changing market topics?
1. Reviewing the economic landscape
The first step is data collection. Before you even think about entering a trade, read up on what’s going on in the economic landscape.
There are many ways to do this such as reading major news sites or reading Pippo’s weekly market reviews every weekend.
Follow this up by checking out the latest important economic reports that have been released.
Check if they were impressed or disappointed and if/how they affected market sentiment.
Ask yourself questions like, “How has the market reacted?” , “Is the market bullish?” , and “Is the market bearish?”
2. Check if the technicians are lining up
After checking the fundamental background and market sentiment, you can move on to the technical side to find a valid forex setup that supports your biases.
Look for patterns, trends, and indicators that the price may move with the theme of the market.
3. Be aware of the feelings of risk
Sometimes the price reaction to economic releases or market developments is not immediate, or there may be instances where a currency ignores an optimistic report completely.
This could be one of those cases where risk sentiment trumps fundamentals or technicals.
For example, a news report out of the US comes out much better than expected, the stock market goes up but the dollar ends up selling off. This could be a sign that the market is very bullish and risk-hungry.
With this information, you are looking for a technical swing setup that will enable you to sell the US dollar against higher-yielding currencies, such as the Australian dollar, at a favorable rate.
4. Look at other markets
One of the distinguishing features that I have noticed among successful traders is their ability to spot market features by recognizing and taking advantage of the patterns of different assets and timeframes.
For example, just because you only trade forex doesn’t mean you don’t have to keep tabs on other financial markets.
We learned from the Intermarket Correlations section of the School of Pipsology that currencies also share relationships with commodities, bonds, and stock indices.
Discovering Market Topics is about bringing together all the key data points and turning them into a workable business framework.
It’s like assembling a jigsaw puzzle from scratch: you start with the edges and slowly build up the middle to form a complete picture.
Some of you might say that this only applies to those who prefer trading higher timeframes. However, as a day scalper or trader, knowing the outlook for a particular economic report can also work in your favor.
As with most things about becoming a better trader, learning how to properly decipher what the market is all about is tough. It requires patience, time and hard work. But the truth is that correctly identifying market topics is very important in trading.
The clearer the overall picture of the market, the easier it will be for you to determine whether a trade is really going in your favor or is simply faking you.
Also, more than just going where the market is taking you, having a specific theme of the market allows you to predict the direction in which it is headed.
Wouldn’t you now like to be able to in this volatile market environment?
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