Forex Day Trading System

What Is A Forex Day Trading System

In the first place, forex day trading system, like any speculation form, has one very important goal that lies above all else ; make some money ! If this is the premise we start out with, that our goals is making money, then in a massive global market market, how do we do this ?

First, figure out if you are a technical trader, fundamental trader, or a combination of both. Later we’ll have more articles on this topic , but now let’s just assume you like keeping up with current events and world affairs and are therefore attracted to the fundamental side of the game . Then you have to ask, what fundamental factors are the most important driving the currency movements ?

If focusing on the fundamentals , forex trading decisions are going to be driven by one thing above all others ; the interest rate differentials between various countries. What is an interest rate differential ? That is a very good question! Let us suppose that the Australian Dollar has a short term interest rate of 4% . This means that if you’re a debtor in Australia this is the very base rate determining what you’re paying on your home mortgage, your credit cards, etc . This also means that if you are a creditor you get to use this short term interest rate of 4% as the base rate that will determine how much interest income you make on your investments ; things like certificates of deposits (CDs) at the local bank . Now let’s suppose the US Dollar has a short term interest rate , set by the Federal Reserve , which is 1%. So how in the world does what I just said affect currency movements ?

If the short term rate of the Australian Dollar is 4% and the short term rate of the US Dollar is 1% it’s all as simple as this : investors will seek a higher yield on their investments and since Australia provides more interest they move their funds “down-under” or as the Aussies say, “down-unda mate” . The investment shift of capital leaving the United States and moving to Australia leads to a weakening of the US Dollar since demand is smaller than supply and the Australian Dollar will strengthen because supply is smaller than demand . The basics of economic fundamentals are working; when there is higher demand the value rises.

Next time you think about your forex day trading system and the next position to put on , you should ask, “what country is likely to have higher rates moving forward and which country moving forward will probably have lower rates ?” Purchase currency that is the high interest rate favorite and currency favored for lower interest rates should be sold and watch your profits grow as investors leave currency that is weaker and go towards the one that is stronger. This is the essence of forex day trading system.