Three Factors That Can Control The Dollar
Trading forex is actually not too difficult. Just do buy and sell on a pair. But the difficult is to get the profit is not it? If you want to trade properly you should at least know three factors that can control the dollar. For the pair you want to trade is a major currency related to the dollar.
When you decide to buy or sell dollars, you will see the US dollar’s economic performance. A strong economy will attract investment from around the world to seek a sense of security and be able to achieve reasonable ROI targets. Investors will always look for a predictable high yield or sense of security. Investments coming from abroad will strengthen capital accounts and generate high demand for the dollar.
Conversely, if Americans consume goods imports and services from other countries this will result in dollars flowing abroad. If the value of imports is greater than the value of exports, will cause a deficit in the current account. The strong economy, the country can attract foreign capital to cover the trade deficit.
The bottom line is when you have to take a position against the dollar, forex traders have to assess other factors that could affect the value of the dollar to be able to determine the direction of the trend. That is the factor of supply demand, sentiment factor / market psychology and technical factors. Let’s see one by one.
Supply and Demand against the dollar
When America exports goods or services, it will form a demand for dollars because consumers have to pay for their goods and services using dollars and for that the consumer must convert his local currency to dollars. They sell their local currency and buy dollars to make payments.
In addition, the US government and / or large corporations in the US issue dollar bonds to increase capital and if these bonds are bought by foreigners then again these bonds must be paid with dollars and bond buyers must sell their local currency to buy dollars so they can make payments .
Also if there is a strengthening of growth in the US and companies expanding their performances and then trigger foreign interest to own shares of companies in the US. Also payments are made with dollars to buy shares. You can look for similar cases that could trigger dollar demand.
Factor of sentiment and market psychology
The trader must be able to determine whether the supply of dollars will be greater or less than the demand for dollars. To help you determine this, you should pay particular attention to the news and events, such as government-released economic statistics and other economic market information. You should find out what data or information has an effect on the economy and the market. So you can determine the market strengthened or weakened.
You should also be able to get general sentiments, like whether most investors in the market think about the release of the event or news. Often sentiments control the market compared to supply-demand basis.
Economic data can drive market sentiment which then drives the dollar. Especially when the release of two or more economic data simultaneously. In fact there are some core economic data that are considered most important can affect sentiment, such as CPI, NFP, Beige Book and others.
While market psychology is more attributable to the sense of security earlier and search for greater returns.
In addition to being controlled by supply demand, market sentiment and psychology, the dollar can also be influenced by technical factors. If you open a chart of a pair on MT4 then it will display history patterns built from seasonal data factors, support resistance levels, technical indicators and others. Many traders believe that the pattern is repeatable and that it can be used to predict future price movements.
The success of trading depends on the ability of the trader to take risks and manage them well. Traders also combine three factors that can control the dollar in making buy or sell trading decisions.
You are expected to master these three factors. You should also remember that these three factors are dynamic so that the ability and willingness to analyze before deciding to enter the market should be done periodically. The more often you analyze the more detailed information you get.
The art of trading is the art of looking for big enough opportunities to win (profit) and be able to predict future price movements.