Technical analysis and fundamental analysis are the two basic areas
of strategy in the FOREX market which is the exact same as in the
equity markets. However, technical analysis is by far the most common
strategy that is used by individual FOREX traders. Here is a brief
overview of both forms of analysis and how they directly apply to forex
If you think it's hard enough to value one company, you should
try valuing a whole country instead. Fundamental analysis in the forex
market is often an extremely difficult one, and it's usually used only
as a means to predict long-term trends. However it is important to
mention that some traders do trade short term strictly on news
releases. There are a lot of different fundamental indicators of the
currency values released at many different times. Here are a few of
them to get you started:
* Non-farm Payrolls
* Purchasing Managers Index (PMI)
* Consumer Price Index (CPI)
* Retail Sales
* Durable Goods
You need to know that these reports are not the only
fundamental factors that you have to watch. There are also quite a
variety of meetings where you can get some quotes and commentary that
can affect markets just as much as any report. These meetings are often
brought out to discuss any interest rates, inflation, and other issues
that have the ability to affect currency values.
Even changes in how things are worded when addressing certain
issues such as the Federal Reserve chairman's comments on interest
rates; can cause a volatile market. Two important meetings that you
have to watch out for are the Federal Open Market Committee and
Humphrey Hawkins Hearings.
Just by reading the reports and examining the commentary, it
can help FOREX fundamental analysts to get a better understanding of
any and all long-term market trends and also to allow short-term
traders to be able to profit from extraordinary happenings. If you do
decide to follow a fundamental strategy, you will want to be sure to
keep an economic calendar handy at all times so you know when these
reports are released. Your broker may also be able to provide you with
real-time access to this kind of information.
Just like their counterparts in the equity markets, technical
analysts of the FOREX trading market analyze price trends. The only
real difference between technical analysis in FOREX and technical
analysis in equities is the time frame that is involved in that FOREX
markets are open 24 hours a day.
Because of this, some forms of technical analysis that factor
in time have to be modified so that they can work with the 24 hour
FOREX market. Some of the most common forms of technical analysis used
in FOREX are:
* The Elliott Waves
* Fibonacci studies
* Parabolic SAR
* Pivot points
A lot of technical analysts have a tendency to combine
technical studies to make more accurate predictions on your behalf.
(The most common method for them is combining the Fibonacci studies
with Elliott Waves.) Others prefer to create trading systems in an
effort to repeatedly locate similar buying and selling conditions.
Choosing Your Strategy
Most successful traders will develop a strategy and perfect it
over a specific period of time. Some people will focus on one
particular study or calculation, while still some others use broad
spectrum analysis as a means of determining their trades. Most experts
would likely suggest that you try using a combination of both
fundamental and technical analysis, with which you can make long-term
projections and also determine entry and exit points. Of course, in the
end, it is the individual trader who has to decide what works best for
When you are ready to get started in the FOREX market, you
should open a demo account and paper trade so that you can practice
until you can make a consistent profit. Many people who fail have a
tendency to jump into the FOREX market and quickly lose a lot of money
because of a lack of experience. It is important to take your time and
learn to trade properly before you start committing capital.
You also need to be ale to trade without emotion. You can't
keep track of all stop-loss points if you don't have the ability to
execute them on time. You must always set your stop-loss and
take-profit points to execute automatically, and don't change them
unless you absolutely have to. Make your decisions and stick to them.
Otherwise you will drive yourself and your brokers crazy.
You should also realize that you need to follow the trends.
If you go against the trend, you are just messing with your money
because the FOREX market tends to trend more often than anything else
and you will have a higher chance of success in trading with the trend.
The FOREX market is the largest market in the world, and every
day people are becoming increasingly interested in it. But before you
begin trading, make sure your broker meets certain criteria, and take
the time to find a trading strategy that works for you.