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Technical analysis and fundamental analysis are the two basic areas of strategy to use when it comes to the FOREX market which is the exact same as in the equity markets. The difference however, is that the 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 trading:
Forex Market Trading Fundamental Analysis
If you think it's hard enough to value one company over another, you should try valuing a whole country instead. Fundamental analysis in the forex market is an extremely difficult one, and it's usually used only as a means to predict long-term trends. But it is important to mention that some traders do trade short term strictly on news releases. There are a lot of different indicators of the currency values that are released at many different times in the day. 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 factors that you have to watch out for either. There are also quite a few different 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 having the ability to affect currency values.
Even changes in how things are worded when they are addressing certain issues such as the Federal Reserve chairman's comments on interest rates; can cause the market to get very volatile. 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 important happenings. If you do decide to follow a fundamental strategy, you will want to be sure to keep an economic calendar around you 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 via the internet.
Technical Analysis for Forex Market Trading
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 general time frame that is involved in that forex trading hours are much longer vs other futures market trading hours.
Because of this, some forms of technical analysis that factor in time have to be modified so they can work directly 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
This is the point where you will actually choose your basic trading strategy. Basically it is best to simply choose whichever that you are the most comfortable with. Your broker can help you in making the right choice here.
Choosing Your Forex Strategy
Most of the successful traders in Forex will develop a strategy and perfect it over a specific period of time. Some people will focus on one particular study or calculation, while some others use broad spectrum analysis as a means of picking their trades.
Most experts would probably 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 him/her.
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 trading until you can make a consistent profit. Many people who fail do so because they have a tendency to jump into the FOREX market and quickly lose a lot of money because they just don’t have the experience. It is important to take your time and learn to trade properly before you start committing any of your capital.
You also need to be ale to trade without feeling. You can’t keep track of all stop-loss points if you don't have the ability to execute them at the right 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. You have to make your decisions and stick to them. If you don’t 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 around 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 getting to be increasingly interested in it. But before you begin trading, make sure that your broker meets certain criteria, and take the time to find a trading strategy that works for you.
When it is time to choose your broker, you will have to take your time as stated before and choose a broker that sticks to one particular formula. It just makes it easier for you to learn and begin your forex ventures.
Forex Trading Tips
There is no doubt that trading requires more than a few quick tips for success. You need experience, capital and most importantly, a good time-tested forex trading system. However, for the average beginner and those who perhaps are losing their focus because of significant draw-downs, keeping things simple can help to introduce much needed focus into your trading. Here are some tips that you can use for trading that can help you in your efforts:
Never add money when you are losing.
Always determine a stop and a profit objective before you start entering a trade. Place stops that are based on market information, and not your account balance.
Remember the power of a position. You should never make a market judgment when you have a position.
Your decision to exit a trade means that you are able to perceive changing circumstances.
In a Bull market, you never want to sell a dull market, in Bear market, you should certainly never buy a dull market.
There are times, due to a lack of liquidity, or excessive volatility, when you should not trade at all.
Trading systems that work in an up-market may not work in a down-market.
There are at least three types of markets like up trending, range bound, and down trading, and you should have a different trading strategy for each.
Up market and down market patterns are always there, and it is only that one is always more dominant. Select trades that move along with the trend.
A buy signal that fails is really just a sell signal. A sell signal that fails is a buy signal.