What kind of strategies can be implemented to trade the forex market?
There are many different types of forex strategies that traders can use to successfully trade the market. However, before you learn about specific trading strategies it is crucial to have a solid back ground in the building blocks of ALL forex strategies. All forex strategies are either based upon technical analysis, fundamental analysis, or a combination of the two. In order to figure out which forex trading strategy is best for you, you must first make sure that you understand what technical analysis is and what fundamental analysis is and how they both can impact your forex trading results.
• Technical analysis
Technical analysis is the art and skill of using price charts to make forex trading entry and or exit decisions. True price chart technicians make all of their trading decisions off of price charts alone and do not combine any other factors when trading the market. The logic behind this behaviour is the belief amongst charting technicians that all relevant and pertinent information regarding a security’s possible direction is reflected through and included in its price movement. Traders and investors who trade solely on technical analysis make all of their trading decisions by using price charts either “naked” or with any number of indicators over-laid on top of a security’s “naked” price chart.
• What is “naked” trading?
The term trading “naked” refers to using a price chart without any indicators on it to trade the market with. This form of trading is often referred to as “price action trading”, because traders using this form of technical analysis make their trading decisions by learning to analyse pure price movement or action, rather than trying to analyse an indicator’s interpretation of that price movement. While some traders do have success correctly implementing certain lagging indicators into their trading, many traders swear by the simplicity and accuracy of learning to analyse a “naked” or indicator-free price chart. There is a certain amount of discretion involved with price action trading and it can take some time to master, this is why many traders are driven towards more robotic type trading systems that do not require any discretion or practice on their behalf. However, for interested parties, price action trading can be one of the most accurate, fun, and stress-free forex trading strategies when mastered and implemented correctly.
• Fundamental analysis
Fundamental analysis is the interpretation of changing economic policies, economic reports, and other national or international economic variables to make one’s forex trading decisions. It is a good idea to have a basic understanding of WHAT causes the forex market to move, so understanding what the various economic reports mean is important to the well-rounded trader. However, it might be MORE important to simply be aware of the possible volatility that could be induced by any given economic report as well as the specific time it is being released. Making all of one’s trading decisions purely on fundamental analysis is a near futile endeavour, this is because everyone trading the market might have a slightly different interpretation of HOW a certain economic report or policy change may or may not affect the forex market.
Furthermore, people’s reactions to economic reports sometimes do not correlate with what the economic report implies, therefore, it is best to have a basic awareness of what the various economic reports mean and when they come out, but any attempt to predict HOW a specific economic report will effect a certain forex currency pair is not going to do you much good unless you can somehow interview every other forex trader in the world and ask them what effect they think the report will have. This is where the saying “buy the rumour, sell the fact” came from, because often times the anticipation leading up to a certain economic news release will cause the majority of the price movement, then once the news is actually released there is nothing new to anticipate, so price will often then go the opposite direction. By:http://www.forextradingstrategies.org
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