The foreign exchange market is as competitive as any other financial market. In order to gain more profit as a forex trader, various trading strategies are utilized. Accurate strategies give traders an upper hand, so to speak. A trader can choose for himself from among the existing forex trading strategies. But, in order to fully maximize a strategy’s profitability, traders should have at least a basic working knowledge on some principles in forex trading.
A trading strategy can have its roots from either technical analysis or fundamental analysis. A combination of the two can also give birth to a number of strategies.
Technical analysis revolves around forex price charts. Technicians or technical traders rely only on price charts; no other factors are involved. Settling on when to enter or leave an exchange depends on the apt analysis of the value charts. By studying and analyzing the charts, which result from market activity, technicians aim to identify patterns or trends. The patterns from past and current value chart progress toward becoming bases for foreseeing future move. Various indicators are used by the technicians when making predictions.
However, there are traders who don’t make use of charts with any indicators and are known as naked traders or price action traders. Naked traders make predictions from the charts’ movement or action alone. Intrigued perusers can discover more on specialized trading from explicit assets.
Fundamental analysis is another base for forex trading strategies. While technical analysis is studying the movement of the forex market, fundamental analysis is studying the causes for the movements. There are a lot of economic or international factors that affect movements like a change in policies and other reports. Traders analyze what the economic reports mean, relating them to the time or date of their release. However, traders would have different interpretations of reports (sometimes differing from what the reports actually imply) so it would be difficult to make predictions from only fundamental analysis. Traders may have varying interpretations of how economic reports affect the foreign exchange market.
Of course, becoming a technical or fundamental trader cannot be achieved by merely reading a couple of paragraphs. A lot of research is expected to discover increasingly about these trading system bases. Experience is also a big factor, knowing is useless without application. Technical or fundamental traders need time and determination.
Being knowledgeable about technical and fundamental analysis can help forex traders utilize a certain trading strategy to be more profitable.