The Major Elements Of A Forex Trading Strategy
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Forex trading used to be limited to fairly wealthy, long term investors and all trades had to be carried out manually by a broker, which might or might not have been your bank. The client had to telephone his broker, who would pass on any knowledge the company had about latest developments in the currency markets and the client and the broker would come to a decision whether to buy a new position, or sell or hold an existing position on the strength of that intelligence.
It followed then that the best brokers were those with the most pertinent and up-to-date information. In addition, trading was not cheap, so it was better to trade only several times a year for long term growth in order to keep overheads (fees) to a minimum.
This set-up has been drastically changed by the Internet. These days, most Forex trading platforms have been automated, so, although charges do vary, they are a lot lower than they used to be because there is less human involvement and there is more competition. The knowledge of the markets that brokers defended jealously from other brokers is now common knowledge for those who want to find out, as all major stories are sent around the world by the press agencies.
The two main strategies in investing of any kind including foreign currencies are fundamental analysis (keeping up with the news) and technical analysis. In combination these two research strategies can be called 'due diligence'. Due diligence is the investor's main protection against big losses so it should be studied from the outset.
Technical analysis includes interpreting charts. There are literally hundreds of different charts which try to forecast a currency's future movement (up or down) by analysing historical data or what it has done in the past. Some investors swear by charts, others say that past performance can not have any influence on the future events that might affect a currency's movement.
For example, the GBP (British Pound) might have been doing very well for months and the trend is up for the long term, but then terrorists explode a series of bombs in London and the GBP plummets, That could not have been predicted by charts.
Having said that charting is fascinating and almost certainly has its uses, not least in forecasting highs and lows. For example, say the Thai Baht has historically been around 40 B to the USD, say for 15 years and Thailand is a very popular vacation destination. If the Thai Baht (THB) strengthens to 30B / USD, people will stop going there which will harm the THB and tend to bring it back towards 40:1 again. Charts can suggest acceptable highs and lows based on past data.
A common way of predicting these highs and lows is the use of Fibonacci retracements. Do not worry about all these charts, they usually come built into any charting software you use, whether you buy it or use the Forex trading company's free software.
Fundamental analysis is the other element of successful analysis or due diligence. Every week, figures are disseminated to reveal some economic detail of a particular country such as non-farm payrolls or unemployment figures that can perhaps have an unpredictable consequence on the Forex markets Sometimes it is clever to stay out of the markets when important announcements are being made.
Article Source: Articlelogy.com
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