Forex Trading Strategies - Which One You Should Use?

FinanceTrading / Investing

  • Author Matthew Johnson
  • Published September 28, 2010
  • Word count 401

If you have tested or do real trading for some times, you must realize that there are many forex trading strategies that can be applied. Every strategy has different pros and cons, need different circumstance and data, and will works well in certain currency pair.

Basically, forex trading strategies can be separated into two major:

  1. Technical analysis

This strategy is utilizing data as its main information source, especially charts to predict the future market movement. You will find numerous methods to read this data such as candlestick charting or Elliot wave, yet fundamentally they look for patterns in the chart for a given time and looking for relationships between various indicators like price and volume.

This strategy is preferred by most traders and they utilize it in regular basis to determine the best opportunity available currently. In most cases, each trader possesses their unique method to interpret the data by utilizing various variables that designed especially for a particular market he is in. These difference in methods make them have different winning rates even though they can access the same data; the trader with a better method will get more profits.

  1. Fundamental analysis

This strategy relies on various economy factors such as overall state of economy, interest rates, production, earnings, and management. For example: some news such as Non Farm Payroll or Wholesale Inventories can affect the market considerably. If you can analyze the market movement before the news out, you can secure your position and wait for the profit.

On some occasions, there are important meeting holds by certain persons who have high influence in the state of economy. For example, a meeting about deciding the new interest rate or inflation will present huge impact in the currency values. Typically, it will likely be too late to enter the market when the result has announced, so you have to use the current data to analyze and speculate the result before.

Not only short term trading, fundamental analysis can also be used as a long term forex trading strategies. This is rather complex, but basically you estimate the future trends of the market based on the way the new policy will affect the market in long term.

If forex trading is a new thing for you and you are still searching for applicable forex tradings strategies, I recommend learning technical analysis first since it is the foundation of almost all strategies.

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