Basic FOREX Trading Strategy
As is the case with all investments, investors looking to invest in the FOREX
market require a basic understanding of the available FOREX trading strategy. In
this regard, when trading in FOREX, there are two principal methods of strategy
available to both institutional and individual investors – the technical analysis
strategy and the fundamental analysis strategy.
Technical analysis strategy
Those who utilise the technical analysis strategy for FOREX trading do so by
analyzing price trends over a period of time. However, as the FOREX market is
a continuous one, i.e. it is open 24-hours a day, certain quirks need to be
included in the methodology that allows for this function.
Here, although there are a number of different technical analysis strategies
available, the most commonly used method is known as the Elliot Waves
strategy, which tries to predict currency movements in ‘wave’ patterns, with the
fifth wave pattern seen as being the time to buy/sell a position in a currency.
Fundamental analysis strategy
Unlike technical analysis traders, fundamental strategists look to underlying
factors to try and determine where a currency is going to move to. Here, to a
fundamentalist, factors such as the consumer price index, retail sales, interest
rates, gold prices, will all play a major factor in their determining whether or not a
currency is going to appreciate or depreciate against other currencies, which will
have the same built-in analytical mechanisms. Not surprisingly, fundamental
analyism is not for the feint-hearted and the jargon used can appear
overwhelming at first. Nonetheless, as a long-term projection of where foreign
currencies are likely to move to, the fundamentalist approach does appear to be
the system considered more favourable by professional FOREX traders.
