Forex Market: Introduction and Trading Strategies

Filed Under Finance |

by Carl Abbi

The foreign exchange market is a good place to consider investing in. One of the interesting things about this market is that it’s open 24 hours a day. It is closed on the weekend. The huge trading volumes and the large amount of traders in the currency market make it a very liquid investment. By being a knowledgeable investor and with a little experience you can make a good amount of cash in this currency world market.

There are a couple of trading strategies in the forex market market which is, fundamental analysis and technical analysis. Let us take a look at each of these strategies.

Fundamental analysis, deals with the social and political indicators. Government policies, GDP reports, employment reports play a vital part in this type of analysis. Various industries as well as business cycles determine economic indicators. Using this data, the investor can predict the future of the currency. The stronger the indicators, the more better the future the currency has. This method is used by many long term traders. It can be difficult to fore see the market during a time of silent activity. Two minor strategies used in this analysis is 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.

Another trading strategy in the forex market is technical analysis. This analysis predicts the future of the currency by having a look at its past. A technical investor studies the graphs showing the up and down past patterns 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, aquire real forex information about forex trading strategies. Carl investigates investments and talks about good trading strategies.