The foreign exchange is the largest financial market. In fact, it is the most gigantic in the
world, given its six-trillion-dollar daily turnover. Every individual may learn to become a retail trader, but profit does not come easy. To succeed, you need to foresee the movements of your chosen currencies.
Discover the main avenues of thought that help traders achieve good results. They never
stop learning and applying theory to practice. Websites like trade in forex have a wealth of
educational material for newbies and experts. If you know how the currencies move, you can foretell their direction and reap sizable gains. Here is how to approach the task.
Overview of Analytical Approaches
Traders may belong to one of the two categories: fundamental or technical. It is also
possible to combine both approaches for higher accuracy of prediction. So what is FX
analysis all about?
Currency rates are always changing. It is a vibrant market which is swayed by multiple
factors, from GDP to geopolitics to US elections. Traders who adhere to the first approach
zoom in on factors like:
? interest rates,
? unemployment rates,
? trade deficits,
? international relations, etc.
These are referred to as the fundamentals. For example, if the Central Bank raises its
interest rate, the national currency often strengthens, and vice versa. Rising unemployment and trade deficits are linked to depreciation.
From fiscal policies to diplomatic tensions, there is a lot to take in. Luckily, trading platforms have economic calendars which present the most vital information in a condensed form. Day traders spend a few hours every morning reading the news. Reports released overnight help them see how the market could behave once it opens.
Not everyone thinks following the media is the best way. Technical analysts rely on different
indicators to identify patterns which are likely to repeat themselves. Their arsenal includes
adjustable price charts and tools like moving average, volume indicators, etc.
They apply different criteria to see the confluence. These are situations when two or more
factors are pointing in the same direction. For example, if a price rise is supported by
growing volume, the trend is likely to get stronger.
Technical analysis also forms the basis of Forex robots, also known as expert advisors.
These additions to trading terminals may be programmed to analyse the market and make
decisions while you are away from your machine.
No Single Solution
Trading the news requires incessant monitoring of media information. It is also more
theoretical and focuses on the long-term value of an instrument. Technical analysis also has
complexities, but it is more practical. Using indicators, traders analyse their instruments as
they exist.
Life would be easier if currency pairs were swayed by a handful of factors. Still, the reality is quite complex. Traders do not have to adhere to a single approach. Try different systems in the practice mode, and see which works for you.
