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Forex Trading Strategies
There are almost as many trading strategies used in the forex market as there are traders. But there is some commonality shared by most forex market participants.
The majority of forex traders choose to adopt a trading strategy based on either technical or fundamental analysis, or a combination of both. The description below outlines some of the defining features of both these approaches.
Technical Analysis
Technical Analysis concentrates on the simple fact that history repeats itself as well as a graphical representation of the market price action. This type of analysis is ideal for long-term to short-term strategies, depending on the timeframe used during the analysis process. Use the technical analysis to develop a trading plan and define the target and stop loss for any trade.
Fundamental Analysis
Fundamental Analysis focuses mainly on the economic, social and political forces that drive the supply and demand, hence the market price. This type of analysis concentrates on macroeconomic indicators such as economic growth rates, interest rates, monetary policy, inflation and unemployment.
Technical and fundamental analysis are both closely linked but they are independent and complementary. Fundamentals assess general market trends while technical analysis is more refined, providing specific entry and exit points for a trade. It is recommended to use a combination of both when defining your trading plan.
Any trading strategy in foreign exchange is based on the following assumptions:
The state of the market
First of all you take an overall view of where the market is going.
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Timeframe for trades
Determine if the position you want to take is long term or short term.
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Time your trade properly
Don't jump on the first price available, wait until YOUR price is available.
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Gauge sentiment
Review technical analysts' consensus and political conditions.
