The Forex market is the largest trading network in the world with more than 5 trillion dollars being exchanged daily. There are dozens of different currencies traded, but the big players mostly focus these major currencies- EUR (Euro), GBP (British pound), JPY (Japanese yen), CHF (Swiss franc), AUD (Australian dollar), NZD (New Zealand dollar), and the CAN (Canadian dollar).
Each of these currencies is exchanged with the currency of other nations at different exchange rates, which are always in a state of flux because the market trades around the clock. The volatility and sheer size of the market means that there is ample fluctuation to produce big profits and losses. The challenge for the investor, as always, is to predict which direction the rates of currency pairs will go.
The beginning point in any investment strategy is determining what type of analysis will be used to help guide enter and exit decisions. Investors who use fundamental analysis look at a nations interest rates and other economic indicators when deciding to enter or exit a position. Fundamental investors tend to trade based upon news, information and economic data from the nations involved in the currency pair.
Technical analysis involves the interpretation of price performance and chart patterns. Some of the indicators that technical use are moving averages, breakout points, 123 tops and bottoms, and support and resistance levels.
Technical traders do not believe that the past necessarily predicts the future, but that long- and short-term trends can be identified and exploited to help guide current decisions on entry and exit points of positions. Technical traders try to identify current trends in the Forex market to determine entry and exit points. If they are correct, they can ride a trend, either up or down, for a profit, until an exit point is reached, when the trend is ending/has ended.
The most successful traders in the Forex market tend to look for long-term trends and favor technical analysis. Fundamental traders usually enter and exit positions very quickly in order to capitalize on price fluctuations caused by news events/information.
The top Forex traders tend to agree on the following:
1. Choose currency pairs involving the U.S. dollar. The U.S. dollar has enough volume to produce the price fluctuations necessary for big profits and the liquidity to enter/exit positions at will.
2. Find currency pairs through back testing that has most profit potential (pip movement) and the least volatility through the use of technical analysis.
3. After determining trends, set stops and exit points for both protection and maximum profitability.
4. Review charts once or twice a day. Over trading and day trading can hurt your portfolio.
5. Remain patient and exit positions once technical decision point has been reached.
Trading strategies are never perfect because the market will never be predictable 100% of the time. There will be times when any strategy fails and stop points are reached before profits are realized. Continuous back testing, remaining patient, and setting stops are very important practices, for successful Forex trading.
Understanding The Forex Market – https://www.mastersofmoney.com/understandingtheforexmarket/
Risk disclosure: *All investments involve risk. Before making any financial or investment decisions, we highly advise that you seek the advice of a properly licensed and trained investment professional.