Choosing a Forex Strategy

Technical and fundamental analyses are the two main strategic directions of the Forex market as well as of the stock markets. However, technical analysis is definitely the most widespread strategy used by individual forex traders.

 Here is a brief review of both analysis types and a description of their correlation to Forex trading:

Fundamental Forex Analysis

In case you find it difficult enough to evaluate one company, try and assess a whole country instead. Fundamental analysis in the forex market is often fairly complicated and is usually applied for the purpose of forecasting long-term trends. However, it should be noted that some traders perform short-term trades relying on the latest news’ broadcasts.

There are a lot of different fundamental indicators of currency value issued at different time periods. Here are a few of them to begin with:

  • Non-farm Payrolls
  • Consumer Price Index (CPI)
  • Retail Sales
  • Durable Goods

You have to be clear that these reports are not the only fundamental factors you have to keep track of.

Apart from mentioned above, there are also various events as a result of which you can derive some commentaries and information that might influence the market the same way as some official report.

Even changes in the wordings of the same statements such as comments of the Federal Reserve Board Chairman with regard to interest rates can seriously affect the market volatility. Set reminders for the dates of the two important meetings – the Federal Open Market Investment Committee and the Humphrey Hawkins Hearings.

Review of reports and commentaries can help the fundamental forex analysts get a better understanding of any trends, including long-term ones.

Short-term traders are able to profit from unforeseen events affecting the market. If you decide to follow the fundamental strategy you should always have an economic calendar at hand so that you know when these reports are released. Your broker may also provide you with relevant information of this kind.

Forex Technical Analysis

Just like their colleagues in the stock markets, technical analysts of the FX market analyze price dynamics. The only principal difference between the forex and stock markets’ technical analyses is the time frame (FX market works 24 hours a day).

Because of this, some forms of technical analysis related to time frames have to be modified so that they can be applied in the 24-hour mode.

Some of the most common forms of technical analysis used in Forex are:

  • Elliott Waves
  • Fibonacci studies
  • Parabolic SAR
  • Pivot points

 Many technical analysts tend to combine technical tools to provide more accurate forecasts; the most common method used is a combination of the Fibonacci studies with the Elliott Waves.
Other forex experts prefer creating trading systems in such a way that they repeatedly locate the best buying and selling conditions.

Choosing Your Forex Strategy

Most successful traders develop one strategy and hone it to perfection over a specific period of time. Some people focus on one particular study or tool, whereas others use a broad spectrum analysis as their key trading approach. Most experts suggest that traders apply a combination of fundamental and technical analysis as this enables to make long-term forecasts and to determine entry and exit points. Of course, eventually each trader decides for himself which methods are optimal for his personal needs.

When you are ready to start trading Forex, begin with a demo account to do some trial trading first; you should practice this until you learn to make stable profit. There are traders who ignore this recommendation and jump over right into the real money FX market.  This usually means a sad end, as they tend to quickly lose large sums of money due to the lack of experience. It is extremely important to take your time and to learn trading patterns before you start trading for real.

You also have to learn to trade unemotionally. You won’t be able to keep track of all stop-loss points if you don’t have an ability to execute them on time. You should always set your stop-loss and take-profit points to be executed automatically and don’t change them unless you need to. Make your decision and stick to it. Otherwise you will drive yourself and your brokers crazy.

You should also realize the necessity of following the trends. In case you are going against a trend you are risking your money because the Forex market trends are stronger than any other. Trading in line with the trends gives you higher chances of success.

The Forex market is the largest market in the world, the interest to it grows day-to-day.  But don’t plunge headlong into forex: before you begin trading, make sure the chosen broker meets all your criteria, and take time to elaborate a strategy that will suit you best.

Related Forex Articles