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Introduction and Trading Strategies to the Forex Market

Apr 22, 2008
The forex market is a great place to invest money. Consider some various factors. First of all, unlike the stock markets, the forex market is open 24 hours a day, excluding the weekends. Other factors include its geographical dispersion, the large trading volumes and the large number of traders in the market. A smart investor can easily grasp all the profits available in the "FX" market. Frankly speaking, with a little experience and with some knowledge, you too can be one of the "smart investors".

There are a couple of trading strategies in the forex market market which is, fundamental analysis and technical analysis. Let us take a look at each of these strategies.

Fundamental analysis, as the name says, deals with the social and political factors, government policies, GDP reports, employment, various industries, the business cycle and the economic indicators. Using the above data, the analyst can predict the future of the currency. The stronger the above mentioned factors of the country, the better future its currency has. This method is the prominent amongst the long term traders. However, it is quite difficult to predict the market during silent activity when analyzing fundamentally. This particular trading strategy is itself divided into two minor strategies, i.e., capital flows and trade flows.

Capital flows is the flow of money through foreign direct investments, joint ventures,and third party licensing agreements that reflect the economic growth and financial stability of a country. Equity market investments, and fixed income market investments are common portfolio investments. Trade Flows is the international imports and exports carried out between different countries. It plays an important role in forex market as the importer needs to sell his currency in order to purchase the goods from the other country. It can be a great example of currency exchange and probably is the best way to predict the currency's future. Global news and happenings as well as a country's specific happenings also affect the forex market. So it is always good as a fundamental trader to keep a track of the world news and country's relations when investing in its currency.

Another trading strategy in the forex market is technical analysis. This analysis predicts the future of the currency by having a look at its past. A technical investor studies the graphs showing the up and down past patterns of the currency.

Tools used by a technical trader are: Relative Strength Index (RSI): This is a ratio of the up and down movements of a currency that equates on a scale of 0-100. A second tool is Fibonacci numbers theory: The Fibonacci number sequence (1,1,2,3,5,8,13,21,34...) is used by adding the first two numbers to arrive at the third. As a forex investor, one may use them to project profit targets and price retracements. The last tool is Elliot Wave Theory: It is based on wave patterns and fibonacci number sequence. Good Elliot wave patterns shows a five-way advance followed by a three way decline.

We have looked at two trading strategies used in trading in the forex market. Each has its good and bad points so it's up to you to chose which one you wish to trade with. Trading strategies harm only when you apply them without the sufficient knowledge.
About the Author
Before buying useless software online, aquire real forex knowledge about forex trading strategies. Carl investigates investments and talks about good trading strategies.
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