Methods or Techniques for Trading the Forex Market
The Forex market offers the trader numerous opportunities and can be very profitable to trade and also very exciting. The most important Forex market is the spot market as it has very large volume. The market is called the spot market because trades are settled immediately, or "on the spot".
With Forex trading there are also considerable risk factors. It is seriously crucial that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. There are unique benefits to trading the Forex market, but you need to understand exactly how each trade you enter works. In other words, why you are entering into a trade, and being able to keep a calm easy mind. Fear and greed are, without a doubt, the enemies of the successful Forex trader.
There are two common methods or techniques of trading the Forex market. Firstly, technical analysis focuses on price patterns and uses charting to distinguish them. Technical analysis focuses on price action and market behavior. With the use of various indicators, you will be able to recognize and combine pattern recognition with your favorite indicator for confirmation to take a trade. It is not necessary to use a large variety of indicators, usually 2-3 are quite adequate, especially if you are combining indicators with price patterns.
The indicators are available on most trading software, and all calculations are done automatically within the software. The problem with trading indicators only is that, firstly they are lagging price, and then you are only looking at the right side of your chart, waiting to see what will happen. What about the left side, or the side of your chart that is telling you what has already happened? This is a very important aspect of trading, I call this the bigger picture. A good chart is priceless if it helps to identify a great opportunity.
Momentum analysis is a measure of the change in Forex trading trends over a certain period of time. Certain momentum indicators will show if a currency is overbought or oversold, and these are common and very useful tools for technical analysis.
The second - fundamental analysis - regards price behavior as a product of economic and political events. Fundamental analysis involves the use of economic data, critical political decisions, or the different social issues that influence prices. Interest rates and employment numbers are major economic data that could move the market substantially.
Fundamental trading is a very effective way to forecast economic conditions, but not necessarily exact market prices.
Do not fill your mind with too much information, the best way to trade is the simple way. However, it is very important to understand fundamental and technical analysis in order to use them for your Forex trading.
by Linda Wainman