Forex trading has become more popular and because of this, many people think it must be simple. But, like any other form of investment, a little knowledge can be a dangerous thing. The good news is that there are foreign investment strategies out there that can be used by any type of investor, from beginners to the more experienced. It is important to research the different strategies that are available to find the one that will best suit you before you start.
Daily or Weekly Trends
A basic strategy that many people use is to follow trends, most commonly daily or weekly trends. This involves reviewing daily and weekly charts and analyzing them for trends. Start off conservatively when you use this type of strategy. This strategy appeals to beginners as it means you don’t need to watch the market constantly; however, you must make sure to have a stop and set your goals.
Day Trading and Technical Analysis
Most day trading strategies involve forex technical analysis. This includes understanding charts and learning how to read the charts. Forex charts are most commonly displayed as a candlestick, a bar or a line. Candlestick charts show opening prices, closes prices, high prices and low prices for the time period the candlestick covers. Bars show the same information, but may be more difficult to view. Line charts are more basic and therefore less common, showing only the trend in price movement. Traders who understand charts can then use technical analysis. Technical analysis involves understanding the factors that are currently affecting the market, rather than the factors that may affect it. Technical analysis works on the assumption that prices can only move upwards, downwards or sideways. It identified patterns that are significant and assumes that patterns repeat themselves. In other words, technical analysis works on the premise that market movements are predictable.
Fundamental trading is a more old-fashioned strategy for forex trading which does not rely on signals from charts. Fundamental trading requires traders to follow the news for various countries and understand the economic trends of the countries, playing the currencies of one country off another. This requires an understanding of economic reports and the ability to compare the reports of different countries. It looks at unemployment rates, exports and imports, inflation, poverty levels, trade relations with other countries, interest rates and more.
There are many factors to take into account when trading and it is important to find a strategy that works for you. Either way, you need to spend the time understanding the market and gaining knowledge that may impact the market. It is best to combine forex investment strategies, using both technical analysis and fundamental analysis before making any decisions. Find a trading system that allows you to trial your strategy in a free demo version before you commit your trading bankroll to that strategy. Always make sure to use money that has been set aside and that you can afford to lose as you perfect your strategy.