In the past, many traders used fundamental analysis as a main basics in their forex trading system. How they trade is they analyze both past and current and economic events or news to predict price movements in the forex market.
It was true that in the past, when there was a release in economic news or events, there were some big movements for the currencies and traders took the opportunities to take advantage of that. They could make some big gains when the movements were strong, but now is a totally different story because those big movements have subside and it’s not easy to trade news.
Fundamental analysis is a difficult forex strategy to implement in your trading as it requires very strong knowledge and experience to analyze the enormous and deep data. As if this was not enough, decisions of what is and is not important when it comes to fundamental analysis and whether that certain data is relevant is not easy to be made.
Today, most traders who are successful in forex trading will use the analysis which is widely used and useful, and that is technical analysis. Although in technical analysis, you may find it not much simpler to master them, but it will take you shorter time and easier to learn due to it’s nature and if you can abide by the rules.
To learn how to trade forex successfully, it’s always important that you understand the below 3 forex trading strategies for technical analysis:
1. A forex currency price will follow a trend and the trend can be identified by looking at the patterns or history in forex charts. If anyone tells you that he can also profit from counter-trend markets consistently, yes…it can be done, but you’ll need some experience and forex techniques to do it well over a long period of time.
2. The market forces will drive the price up or down by economic news releases, but that is not the most important thing because what can you do even if you know that? Those are tough to predict and we can’t use that as a proper trading technique. But as far as technical analysis is concerned, we know that it is simply the price movements themselves and we will know what direction they are going by judging the action of the price using some forex indicators like MA, support and resistance etc.
3. A currency price not only shows the price history of the past, but will also follow the trend that was in the past. Some very important technical analysis is to use Moving Averages, Bollinger Bands, MACD to keep track of the trend.
When the prices come into consolidation, which means there is no trend, you should use a different approach for a different market. You should use support and resistance, breakout strategies etc to analyze the forex market. When the prices retraces, you will use price action and indicators to judge whether are they continuing with the trend.
Many ‘fundamentalist’ or economist still find it hard to accept the principles of technical analysis and believe you cannot predict the price movement as it is a random walk. Nevertheless, the fact that many forex traders are successful in their trading using technical analysis devises that there is no 100% accuracy but rather combining the analysis with strategies like risk to reward ratio, money and risk management to make whole thing work.
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