Choosing The Right Forex Strategy

It is important to choose your Forex trading strategy. Two basic areas of strategy are fundamental analysis and technical analysis. This is the same in the equity market as it is the Forex market. For most Forex traders, the most widely used strategy is technical analysis. The following article is explains how each strategy basically works and how they are used in Forex trading:

Technical Analysis

Since technical analysis is the most common, we’ll start with it. Technical analysts in the Forex market analyze price trends, exactly like in the equity market. There is only one real difference between using it in the equity market and using it in Forex. This difference is that the Forex market is open 24 hours a day, changing the time frame.

On account of this, your technical analysis has to be changed a bit so it can function in the 24 hour Forex market. Generally, the forms of technical analysis used in Forex are:

- The Elliott Waves
- Fibonacci studies
- Parabolic SAR
- Pivot points

To make more accurate predictions, a lot of technical analysts will combine these studies. The most popular combination is Elliott Waves and Fibonacci studies. However, others do choose to create trading systems in an attempt to continually locate related buying and selling conditions.

Fundamental Analysis

Valuing one company is difficulty enough. Imagine valuing an entire country. Because it is often very challenging, fundamental analysis in the Forex market is normally just used to make long-term predictions of trends. Some traders do use it to trade short term, though. There is quite a variety of fundamental indicators of currency value. Some of them are:

- Retail Sales
- Purchasing Managers Index (PMI)
- Non-farm Payrolls
- Consumer Price Index (CPI)
- Durable goods

However, there are more fundamental factors that you have to keep an eye on than just these. A lot of different meetings are available where you can get quotes and commentaries that sometimes affect the markets just as much as the reports. In these meetings, you can discuss inflation, interest rates, and other matters that can have an influence on the Forex market.

Merely taking a look at commentary and reading reports can be very beneficial to Forex fundamental analysts in grasping a better comprehension of the long-term market trends as well as help short-term traders to survive tremendous fluctuations in the market.

Choosing Your Strategy

Choosing a strategy and working on it until it is perfected down to the details is how most successful, experienced traders operate. There are many options for your style and methods. Some traders will concentrate on one certain calculation or study, and others focus on a broader analysis of trends. A combination of technical and fundamental analysis is what most professional Forex traders will advise. But everything is up to your decision and what you think fits your way of trading best.

A great way to develop your individual strategy is to create a demo account and trade “paper money” until you get the hang of it. This way you don’t have to risk your money in an investment until you are absolutely sure that you know what you are doing.

Because the Forex market is the largest in the world and the number of traders keeps increasing, it is crucial that you make sure you know your trading strategy and are ready to execute it.