Forex Strategies explained

The Internet has profoundly changed Forex trading and forex strategies.

Traditionally the forex market was the turf of a select crowd of banks, Central Banks, long-term investors with large capital and international corporate organizations. Trading took place via a forex broker who would inform his clients over the phone on what was happening in the currency markets.

Nowadays almost all trading on the currency markets is performed by computerized automated systems. This is part of a global trend of moving trading of financial instruments from “open outcry” markets to computer systems.

There are two main types of Forex trading strategies. The first component is technical analysis. Technical analysis is based on the charts and all so-called technical information that has nothing to do with the underlying true value of the currency. It uses mathematical formulas based on market movements.

Technical analysis uses chart indicators. It is helpful in determining the areas of resistance and support. The situation where the price reverses, stops or is range bound are established. One popular method for determining the levels of resistance and support is the Fibonacci method.

Seven hundred fifty years ago, Fibonacci discovered a unique sequential form in number series. Fibonacci numbers which are series of constant proportions can be found in numerous biological setting such as the arrangement of a pine cone. sunflower seeds. This method called the Fibonacci sequence method is commonly learned in mathematics during high school.

Fibonacci numbers have also been found to describe well currency price movements. They can be used and plotted on the chart to establish price support, resistance or price targets. However, you don’t need to become a math wizard just to do this. The charting forex software is able to do the Fibonacci sequence for you. The key areas of resistance and support are potentially revealed to you as you move along the charts.

The Fibonacci sequence combined with other proper indicators can show the strength and momentum of the most recent market condition. It can help you create a profitable strategy based or supported by mathematical rules. The rules clearly states that history can repeat itself, as what has happened before in the forex market will happen again in the future.

The second component of forex strategies is fundamental analysis. Each and every day, economic numbers impacting the value of currencies are published on the Internet. These are macroeconomic data related to a particular country. Take for example non-farm payrolls that can possibly bring unpredictable effect on the forex markets. The impact depends on the previous data and the figures implications for the country’s economy. The most important rule for beginners and veterans alike is to keep away from the market when important announcements are about to take place.

Traders know when these announcements and economic news are about to be released and they stay away until the news comes to be known to all.

Forex trading profits are made like in a traditional business. The procedure is very simple. You are going to buy something at a lower price then sell it at higher prices. The only difference is that in currency trading, this can be reversible.

A trade is placed either in the sell or buy categories. Then the base currency will automatically buy or sell its opposite currency in the currency pair under consideration. The price will likely change every second. For example, if you purchased the GBP/USD pair. It literally means that you have purchased the pound currency and sold the dollar currency. You want a rise on the pound’s value which will later on have a higher price compared to the greenback when you resell it in the forex market.

If your broker allows you to take on a 200:1 capital leverage, then you can possibly control much more money than what you really have. This is allowed because currencies do not move that much compared to one another, unlike in the stock market where very sharp price movements are always possible. So, your capital is under less risk. The only crucial part which should be considered are the proportions which can be either gained or lost whenever changes in currency pair values occurs.