The Forex market also known as foreign exchange has two basic strategies – Technical analysis and Fundamental analysis. The strategy used in the Forex market is similar to the strategies used in equity markets. The most commonly used strategy amongst Forex traders is Technical analysis. However for becoming a successful currency trader, it is important for traders to know the working of technical as well as fundamental strategies.
- Fundamental Analysis: Fundamental Analysis is very complex in nature and is usually used by traders who prefer long-term trends. Fundamental analysis is done by analyzing fundamental factors of a country which includes Purchasing Managers Index, Retail sales, Consumer Price Index, Durable goods and Non-farm payrolls to name a few. Traders using the fundamental strategy always keep their eyes open to detect the changes in the fundamental factors of a country. Commercial banks and investment banks who are considered as big players in Forex trading organize special meetings to discuss inflation, interest rates and other factors that can influence the rise and fall of a currency rate.
Traders also keep a keen eye on the statements made by governments that can make the currency market more volatile. Traders generally follow meetings like the Humphrey Hawkins Hearings and the Open Market Committee. Through news and examinations Forex traders can predict the currency rate for long-term trends.
- Technical Analysis: Technical Analysis consists of analysing the price trends in the Forex market. The most common types of technical analysis to determine the Forex market are: Fibonacci studies, The Elliott waves, Pivot points and Parabolic SAR. Most Forex market technical analysts combine technical analysis methods like Fibonacci and Elliott wave theory to come up with sure shot predictions.
Selecting the best strategy and perfecting it over time is the sign of a successful Forex trader. Generally, Forex expert’s advice traders to use the combination of technical and fundamental strategies for accurate prediction. All strategies work best for Forex traders who go with the flow of the trends and not against them. Following successful trends increases the chance of profits. But you must also keep an eye on the Fundamental analysis, in order to get the best results.
