In order to be successful in Forex trading, you need to have a solid and consistent strategy and this article defines the two most basic Forex strategies that are, technical analysis and fundamental analysis. Let’s shed some light on both for better understanding:
Technical analysis is the more commonly used strategy by individual Forex traders and is used to analyze price trends in the Forex market. Technical analysis is also prevalent in equity markets but the key difference remains that the Forex market is a 24-hour market. Any kind of technical analysis that factors in time must be modified to include a 24 hour time cycle.
Some common types of technical analysis carried out in Forex include The Elliot Waves, Parabolic SAR, Fibonacci studies, and pivot points. Some analysts combine two technical studies to determine more accurate predictions.
Fundamental analysis in the Forex market is complex and usually only carried out to predict long term trends. Some traders however, do like to trade based on news released for the short term as well. Different kinds of fundamental indicators of currency value released at different times include purchasing managersâ€™ index, retail sales, durable goods and/or nonfarm payrolls.
These however, are not the only sources of fundamental analysis. It can also come from meeting quotes and commentary that affect the markets just as other reports do. Such meetings could be the ones called to discuss inflation, interest rates, or other issues that affect the value of a currency.
Reading reports and following commentaries can help traders gain useful insight into long term pricing trends and allow short term traders to benefit from any kind of volatility in movement. Traders who tend to follow the fundamental analysis strategy keep an economic calendar handy to keep an eye out for the release dates of reports.
Which Strategy Should You Follow?
There is no hard and fast rule to follow a strategy but you must have one and remain consistent with it. Most traders, after they develop a Forex trading strategy, keep modifying and perfecting it over time. You can base your prediction on one calculation or study or choose to use a broader analysis approach using different tools. As long as you think it works for you, it should be fine.
However, ditch any strategy at the first instance that you feel it is leading to wrong conclusions and decisions. Some trading experts suggest that traders should choose a combination of fundamental and technical strategies to reap the highest benefit as it allows you to establish a long term view as well as help determine entry and exit points in the short term.
In the end, you can only choose a strategy that works best for you in spite of anything anyone else says. To sign up for Forex trading or for more information, visit ETX Capital and polish your Forex trading skills, starting now.