Methods for Trading the Forex Market

The Forex market or the Foreign exchange market is a global market for the trading of currencies worldwide. It is a round the clock market operating 24 hours a day,7 days a week.The Forex market offers its investors many exciting opportunities to make themselves a profitable income. The most important and with the largest volume market in the Forex market is the spot market. It is called the spot market because trades are settled immediately on the spot. Apart from the benefits of Forex trading, there are also risk factors associated with it. It is important that you fully understand the pitfalls and opportunities that foreign exchange trading offers. Fear and greed are the greatest enemies of a successful trader.

Techniques for Trading the Forex market

There are two common methods or techniques of trading the Forex market. They are:

• Technical Analysis
• Fundamental Analysis

Let us explore them in detail.

1. Technical Analysis

Meaning of Technical Analysis: The term Technical is used in all trading fields including commodity stocks exchange, option trading, futures trading and the Forex market also. In this analysis, traders from the technical side define market movement according to data generated from the market. It primarily focuses on price patterns, price action and market behavior. For this purpose it employs various indicators. Usually 2-3 indicators may be with price patterns may be used. These indicators are available on trading software which aid in automatic calculations.

Purpose of Technical Analysis

The purpose of technical analysis is to analyse the change in market trends. This helps the investor to decide when to enter the market and when to exit. These changes are called potential price reversal or pivotal points.

2. Fundamental Analysis

The term Fundamental refers to the study of the basic underlying elements that influence the economy of a particular company or organisation. It regards price behaviour as the product of economic and political events. It includes the extensive use of economic data, social and political issues which might influence the prices. With reference to Forex trading, government policies, bank policies and mood of speculators are some of the fundamentals considered to predict the currency trends.

Purpose of Fundamental Analysis

The purpose of Fundamental Analysis is to forecast economic conditions.

Conclusion

It would be wise and appropriate if traders combine both technical and fundamental techniques when trading Forex since a country’s currency value depends both on fundamental variables( like war, natural calamities, political uncertainties) and technical variables .