This article is taken from the YourTradingEdge magazine (JUL/AUG 2009 issue)
The author, Wayne McDonell is the Chief Currency Coach of FX Bootcamp. He is a member of the US National Futures Association and registered as a Commodities Trading Advisor. His new book ‘The FX Bootcamp Guide to Strategic and Tactical Forex Trading’ is available from Wiley Publishing.
- Wayne McDonell provides analysis of the currency market: currency correlations.
"I’m just a forex trader… not! I love trading currencies. There is no market that is more liquid, more efficient, and more dynamic or that has a daily volume remotely close to the FX market’s $US3 trillion. What’s not to love?
However, most retail forex traders do lose sight of what is most important – why currencies change value. To understand that, you must look beyond the currency pairs themselves and analyse other markets. If you have ever said, “I’m just a forex trader… I trade only currencies,” then you have walled yourself in and will find yourself at a severe disadvantage, as your analysis will be limited to ‘what’ has happened in forex and you will never really know ‘why’ it happened.
Currencies’ valuations change when money crosses borders. Money flows around the world as businesses and banks conduct their normal day-to-day activities. Money also flows from one market to another as investors put their money to work around the world. Whether it is a European car manufacturer building a car plant in Australia, a hedge fund manager in London buying into the S&P 500 in America, or a Japanese housewife carry trading the Turkish lira to collect the high interest, local currency is traded for foreign currency."
