Candlestick Trading Blog
December 11, 2007
Forex Trading Strategy
Forex trading involves the trading of international currencies on the forex markets. It is the most liquid of all the markets therefore requiring a forex trading strategy. There are two types of strategies that you can use when trading forex. They include technical analysis as the first forex trading strategy and fundamental analysis as the second. In this article we will discuss both fundamental and technical analysis as well as the most important part of forex trading. The most important part of trading to a forex investor is the “exit” strategy. We will also list in this article the major currencies that you can choose from to trade. Many successful traders prefer to use technical analysis tools as a forex trading strategy because it uses historical economic data to predict movements in the forex market. With stock technical analysis many traders like to work with support and resistance levels. Both levels are important because once a currency prices drops below its support level it will most likely continue to fall. Likewise, once the price exceeds its resistance level it will most likely continue to climb. A support price is a low price to which a currency repeatedly returns. This represents the bottom of the market. The resistance price, on the other hand, is the high price that currency reaches at times, but above that which it tends to resist. Stock market technical analysis used as a forex trading strategy also includes the use of moving averages that will show the average price of a currency over a specific period of time within a longer period. When using moving averages you can get a clear picture of a currency over time and can eliminate short-term fluctuations in a currency price. The other forex trading strategy is stock fundamental analysis. This type of stock analysis examines current political and economic events in order to predict movements in currencies. It also requires extensive knowledge in relation to changes in trade agreements, trading patterns, interest rates, and employment figures. The problem with fundamental analysis as a forex trading strategy is that it requires a lot of detailed information. The amount of detailed information that must be known to do this successfully is seen to many successful forex traders as impractical. Technical analysis is an alternative approach that can be applied across many different markets and currencies at the same time. The last forex trading strategy discussed in this article is the “exit” strategy. This strategy deals with understanding when to exit the market and is most often the hardest of all of the trading strategies. The reason this forex trading strategy is the hardest is not due to its complexity but rather the emotion involved that will often pull you in the wrong direction. This is referred to as Greed and Fear and it will get you into trouble if you do not practice a strong exit strategy. There are a few techniques within this forex trading strategy that will help avoid this pitfall. First of all, don’t make it too complicated. Create a few simple rules based on the time-frame of the stock charts that you are using, and stick to it. By making a rule this ensures that you don’t have to consult with your emotions each time you need to exit the stock market, but instead you commit to your exit strategy. (It only works of course if you in fact, do commit to the strategy you have devised.) As promised, below is a listing of the major currencies that you should choose from when practicing your forex trading strategy. 2) Japanese Yen (JPY) 3) US Dollar (USD) 4) Swiss Franc (CHF) 5) European Union Euro (EUR 6) Australian Dollar (AUD) 7) 8) Canadian Dollar (CAD) Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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