Feb 12
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An Overview Of Forex Investing Strategies
Forex trading refers to an international, 24/7, over the counter, exchange market where currencies of different nations are bought and sold. Trading is always done in pairs assuming the price of currency bought to go up and that sold to fall down. It is the largest liquid financial market making it impossible for any single investor to influence the prices of currencies.
There are two kinds of Forex investing strategies: technical analysis and fundamental analysis.
TECHNICAL ANALYSIS
Technical analysis is generally undertaken by small and medium size investors. A technical analysis considers factors that are actually impinging on the market as opposed to factors that will impact it. Thus the price quoted shows all the components which have influenced it. Only market generated facts and figures are taken into account and components like fear, hope, expectations or other adjustments aren’t considered. Thus the analysis is normally based upon these suppositions:
1. Price reflects all actual market movements. That means price includes everything known to the market like supply and demand of foreign exchange, political factors, trade agreements etc. It is not concerned with what resulted in change rather deals with actual changes. It works on the assumption that price can take only one of the three directions: upward, downward or sideward.
2. It rests on those market patterns that have been identified as significant. That means those factors which are repetitive in nature or will produce desired results.
3. History normally repeats itself as human psychology alters very slowly as time passes. That is market activity that is expected.
Various technical indicators are relative strength index, charts, gaps, numbers and stochastic oscillator.
1. Relative Strength Index. It will take into account the ratio of upward and downward movements in index and expresses it in the range of zero to hundred.
2. Charts. Charts include many hills, slopes, curves that develop on a chart over a time and reflect some major and minor alterations in pattern. Some of the chart formations comprise of:
a. Triangle
b. Rectangle
c. Head and Shoulders
d. Double Top and Bottom
e. Saucers
f. V
3. Gaps. A gap represents area on a bar chart where no trading happened.
a. Upgap – Is made if the lowest price on a particular day is more compared to highest price of previous day.
b. Downgap – Is formed when highest price of a certain day is less than the lowest price on previous day.
4. Numbers. Several number theories are used in technical analysis like:
a. Fibonacci theory
b. Gann
5. Stochastic Oscillator. This means that the overbought or/and undersold condition. It uses a scale of zero to hundred percent.
FUNDAMENTAL ANALYSIS
FUNDAMENTAL analysis is the one where present economic, political, financial situation of the country of currency is analyzed. A country’s economic and political condition relies on a lot of elements such as the interest rate, unemployment level, exports and imports, per capita income, percentage of population living above and below the poverty line, inflation, trade relations with other countries, tax policies etc.
A fundamental analyst studies and measures all these factors before reaching any decision. Thus it assists in long term making decisions and making profits in short term by extra ordinary improvements.
Some of the indications which help in fundamental evaluation include:
1. Gross Domestic Product. It reflects total market value of all the goods and services produced in a country during a given year.
2. Retail Sales. This shows overall receipts by all the retail shops in a country.
3. Consumer Price Index. It reflects change in prices of consumer goods.
4. Business Cycle. It reflects various phases through which a business passes. These phases include:
a. Growth
b. Peak
c. Recession
d. Depression
5. Monetary Policy. It controls the supply of money in an economy.
Trading effectively requires expertise, time and knowledge of a market. You cannot earn continuously in a Forex market because of its unstable nature. Thus as a trader you should try to consider both technical and fundamental techniques of Forex trading and make decision based on market expectations and trends. Try trading with money that you can afford to lose with no regrets. Trade with logic and if you are not sure stop and take rest for a while.
If you want more tips about Forex Trading visit our website about Forex Trading where you will discover more resources that will benefit you.
