When it comes to successful Forex trading, there are two basic strategies used by the majority of traders: fundamental analysis and technical analysis. Fundamental Analysis In fundamental analysis, Forex traders look for causes that might trigger market fluctuations. These may include political activities, financial policies, growth rates and other factors. As you can imagine, fundamental analysis of the Forex market can be fairly difficult. For that reason, most traders use fundamental analysis only to predict long-term trends. But a few use fundamental analysis for short-term trades. They review different currency value indicators that are released several times throughout the day, such as: Consumer Price Index Purchasing Managers Index Non-farm Payrolls Retail Sales Durable GoodsIn addition, there are meetings held that provide quotes and commentary which may affect markets. These meetings, such as those of the Federal Trade Commission, Federal Open Market Committee, and Humphrey Hawkins Hearings, often discuss interest rates, inflation and other issues that have the ability to affect currency values. Examining the meeting reports and commentary can help Forex fundamental analysts to better understand long-term market trends, and also allow short-term traders to profit from important activities and events. If you decide to follow a fundamental analysis strategy, be sure to keep an economic calendar that shows when these reports are released. Your broker may also be able to provide you with real-time access to this kind of information via the internet. Technical Analysis The more popular strategy for Forex traders is the technical analysis. Technical analysis of Forex trading includes the use of graphs, charts and other methods of measuring past data to see the indication of the rise and fall of currencies. In other words, to spot trends. This is similar to technical analysis for equity trading, except for the timeframe--Forex markets are open 24 hours a day. Because of this, some forms of technical analysis that factor in time must be modified so they will work with the 24-hour Forex market. Some of the most common forms of Forex technical analyses are: The Elliott Waves that interpret market actions in terms of recurrent price structures.Fibonacci studies which make use of of arcs, fans, retracements, and time zones to anticipate changes in trends.Parabolic SAR (Stop and Reverse) that allows the investor to follow the dots in either an upward or downward trend until SAR is reached and the trend reverses.Pivot points of prices used to calculate the point of rotation of the previous period's high, low and closing prices for a security.Many technical analysts use a combination of these studies to make more accurate predictions. Others create trading systems to identify trends in buying and selling conditions.
Most traders determine a strategy they're comfortable with and perfect it over time. Some focus on one particular study, while others use broad spectrum analysis to help with their trades. Perhaps the best strategy is to try a combination of both fundamental and technical analysis. This will allo you to make long-term projections and also determine entry and exit points. In the end, the best basic Forex strategy to use is one with which you are most comfortable (often determined through trial and error). Your broker can also help you in making the right choice. |
