Trading Strategies and a Introduction to the Forex Market | Finance

By CarlAbbi
Total views: 7
Word Count: 541

The forex market is a great place to invest money. Consider some various factors. First of all, unlike the stock markets, the forex market is open 24 hours a day, excluding the weekends. Other factors include its geographical dispersion, the large trading volumes and the large number of traders in the market. A smart investor can easily grasp all the profits available in the "FX" market. Frankly speaking, with a little experience and with some knowledge, you too can be one of the "smart investors".

There are two trading strategies in the currency exchange market, that being, fundamental analysis and technical analysis. Let us have a real good look at each of the strategies.

Fundamental analysis, as the name says, deals with the social and political factors, government policies, GDP reports, employment, various industries, the business cycle and the economic indicators. Using the above data, the analyst can predict the future of the currency. The stronger the above mentioned factors of the country, the better future its currency has. This method is the prominent amongst the long term traders. However, it is quite difficult to predict the market during silent activity when analyzing fundamentally. This particular trading strategy is itself divided into two minor strategies, i.e., capital flows and trade flows.

Capital flows is the flow of money through foreign direct investments, joint ventures,and third party licensing agreements that reflect the economic growth and financial stability of a country. Equity market investments, and fixed income market investments are common portfolio investments. Trade Flows is the international imports and exports carried out between different countries. It plays an important role in forex market as the importer needs to sell his currency in order to purchase the goods from the other country. It can be a great example of currency exchange and probably is the best way to predict the currency's future. Global news and happenings as well as a country's specific happenings also affect the forex market. So it is always good as a fundamental trader to keep a track of the world news and country's relations when investing in its currency.

The second trading strategy in the forex market is technical analysis. Unlike fundamental analysis, the technical Analysis predicts the future of the currency by having a look at its past. A technical analyst studies the graph showing the up and down pattern of the currency.

Tools used by a fundamental investor are: Relative Strength Index (RSI):This is a ratio of up and down movements of a currency and equates on a scale of 0-100. A second tool is Fibonacci numbers theory: The Fibonacci number sequence (1,1,2,3,5,8,13,21,34...) is used by adding the first two numbers to arrive at the third. As a forex trader, one may use them to calculate profit targets and price retracement levels. The last tool is Elliot Wave Theory: It shows wave patterns and fibonacci number sequence. Ideal Elliot wave pattern shows a five-way forward advance followed by a three way recline.

So, we had a look on the two trading strategies used while investing in the forex market. Each has its positive and negative points and thus, its up to you to chose which one you wish to follow. A strategy harms only when you apply it without sufficient information required.

About the Author

Before aquiring unsuccessful software online, get good foreign exchange knowledge about foreign exchange trading strategies. Carl researches investments and talks about good trading strategies.

You are here Articles > Finance