This article looks at the basics forex trading strategies that you can use on the forex market.
In the foreign exchange trading market, technical and fundamental analyses are the two basic forex trading strategies that are regularly used. The technical analysis method is the one used by most individual traders.
The Use of Fundamental Analysis
The idea of valuing an entire country is mind boggling. Fundamental analysis in the foreign exchange market is an extremely complex strategy and is used to predict long-term trends. There are traders who trade in the short-term based on news releases. There are several different indicators that are used to undertake fundamental analysis. These include:
- The Consumer Price Index
- The Purchasing Managers Index
- Non-farm Payrolls
- Durable Goods
- Retail Sales
These are not the only fundamental factors to keep your eye on. There are meetings that take place which generate several commentaries and quotes from different sources. These can affect the markets as much as any of the reports that are released on a regular basis. These are generally central bank meetings that are convened to discuss inflation, interest rates and other factors that may affect the valuation of a currency.
By keeping up to date, reading, examining and analysing these reports and commentaries, you will gain an improved understanding of the long-term trends in the market. To effectively follow a fundamental strategy you should maintain a forex calendar and make it available at all times so that you are aware of the release dates and times of all these reports. Some forex brokers provide real-time access to a lot of this information.
Technical Analysis Forex Trading Strategies
Technical analysts in the forex market analyse price trending. The main forms of this analysis used in the forex market are:
- Fibonacci studies
- The Elliott Waves
- Pivot points
- Parabolic SAR
Some technical analysts combine studies to obtain more accurate price predictions. The most common combinations are Elliott Waves with Fibonacci studies. It is possible to create forex trading systems that will repeatedly find buying and selling conditions that are similar.
Developing a Strategy
Successful traders often develop forex strategies and work on it to perfect it over time. Some traders focus on a particular calculation or study, whereas others use a wide spectrum to identify their trades. Most analysts suggest that you combine fundamental with technical analysis to allow you to undertake projections in the long-term, but also allow you to recognise exit and entry points. This being said, the final choice is up to the trader as to the system that suits him or her best. This will only be determined by trial and error.
You should open a practice account and trade your forex trading strategies until you are making a regular profit. Learn the trade thoroughly before you commit to investing capital. Your best way to learn the trade is by doing it and learning from your mistakes.
Keep your emotions in check. You should set your take-profit and stop-loss point to be carried out automatically and do not change them unless it is absolutely necessary. Make a decision and stick to it. Do not become greedy as this will prompt you to trade emotionally which will lead to losses.
Trade with the trend, not against it! If you intend trading against the trend, there must be an exceptional reason behind your decision. The foreign exchange market usually trends instead of moving sideways and this offers you the most chance of success if you trade with the trend.
Get a free Forex PDF PLUS:
- 14 Video Lessons
- Free One-on-One Training
- A 5000$ Training Account
- In-House Daily Analysis
- Get FULL ACCESS