Forex Strategies- How to Choose the Right One for You
There are many forex trading strategies out there but we will focus on the two main ones: Technical analysis and fundamental analysis. First of all, let’s explain what Fundamental and Technical Analysis are?
This form of analysis enables you to value an entire country which can be extremely difficult at times. It is used in order to predict long terms tends. A lot of traders prefer to trade short term and base their trading on news releases alone which consist of the following (a partial list):
- Retail Sales
- NFP (Non- Farm Payrolls– A monthly report issued by the U.S Bureau of Labor Statistics, which states the total amount of paid U.S workers, (without including general government jobs, nonprofit organizations, private households and farm employers).
- CPI- Consumer Price Index- examines the weighted average of consumer goods and services (such as food, medical care, transportations etc in order of importance) .
Please note that there are a lot of other meetings, occasional commentary and the Fed’s chairmen’s quotes that have an influence of the market.
One important tip to follow is to keep an eye on the economic calendar in order to get live updated which will help you make wise decisions.
Technical Analysis is trying to analyze the future price movement (either up or down) based on past price movements, which are great indicators to where the current price might reach. Though it is not an exact science, the various charts provide a fair amount of likelihood which can help traders immensely.
Here are the common forms of Technical Analysis used in the Forex market:
- The Elliott Waves Theory- In the late 1920s, Ralph Nelson Elliott discovered that stock market does not, in fact, behave in total chaos, but rather in cycles that repeat themselves and are as a result of the traders reactions to external influences.
- The Fibonacci Retracement– This is a term that refers to areas of support or resistance. The key Fibonacci ratios are 23.6%, 38.2%, 50%, 61.8% and 100%.
- Pivot Points- This is a Technical Analysis indicator which determines the main trend of the market on different time frames. The pivot point is the average of the high, low and closing prices from the previous trading day. Trading above the pivot point shows a bullish trend while trading under the pivot point shows a bearish trend.
You can use two instruments together in order to get a more accurate view of the market.
How to choose the strategy that works for you?
There are a lot of instruments in which a trader can choose to work with. While some traders prefer to work with one strategy, others prefer to combine several ones in order to determine their trades. The common method is to combine both Fundamental and Technical Analysis. At the end of the day- you should choose what you most feel conferrable with.
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