Currency Trading
Strategy
There are two main strategies used by forex traders: Fundamental Analysis and Technical Analysis. They both have advantages and drawbacks. Which one to choose depends a lot on what kind of trader you are and what temperament you have. Some forex traders prefer to immerse themselves in economic data and reports, while others prefer to make sense of the psychology of the market. Fundamental Analysis Fundamental Analysis is a currency trading strategy that aims to predict future movements in the currency market by looking at the key economic factors that affect a currency. It's basically the same approach as when stock traders analyse a company's earning potential by looking at the company in more detail. You try to gather as much information as possible and piece it together to determine how profitable the company is going to be. In the forex market things get a little more complicated. When you look at a stock, there's a fairly limited amount of factors to consider and you get quarterly earnings reports to base your valuation on. In forex there are many more factors to consider as a currency's strength is determined by the health of an entire nations economy. This means there are tons of factors that must be weighed and considered before you can make an educated guess as to where the currency is going. The most important factors are GDP (Gross Domestic Product), Interest Rates, CPI (Consumer Price Index) and many more. All these key numbers are an entire field of study in themselves. Many traders choose to focus on a select few key economic reports that come out on a regular basis such as Federal Reserve reports. In the days and hours leading up to such an economic news release, the market gets very active, culminating as soon as the numbers are made public. Traders who use this strategy to profit are called 'news traders'. Fundamental analysis requires good analytic skills and general economic understanding. Technical Analysis Forex technical analysis is a currency trading strategy that analyses charts in an attempt to forecast future price movements. The process is about analyzing market data, price trends, trading volumes and more in order to make a 'guesstimate' of where the price is heading. Technical analysis works on the hypothesis that history is bound to repeat itself, so by comparing current market conditions with known historical data, it should be possible to predict if the price of a currency pair will rise or fall. It has to be said that it's obviously not possible to make absolute predictions. Technical analysis is the bread and butter of forex day traders and it's an absolute necessity to know if you're going to be successful in forex trading. Technical analysis uses indicators with names such as Moving Average, MACD and Bollinger Bands. It's not something to pick up in an afternoon, but fortunately there's forex software out there that can do most of the grunt work and even trade on these indicators. You can read more about forex robot trading on this web site.
Note: Forex Trading is a very risky form of online investment and is not suitable for many traders. Please read the investment disclaimer on Forex trading. All information on this website is for informational purposes only. The use of this website constitutes acceptance of our terms and investment disclaimer. |
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