The Role of Fundamental and Technical Analysis in Forex Trading Strategies
Whenever you’re dealing with the FX market, it’s important to have the right forex trading strategies in place. This offers a $3 trillion foreign exchange, and it is considered the biggest stock exchange in the world. In order to be successful in your currency trading, it will be important to utilize the proper tools.
After all, it’s extremely easy to lose your money this way, especially if you don’t have any forex trading strategies before you get started. Two of the most important tools you will use are; fundamental and technical analysis. When you look at a fundamental analysis you are able to predict the overall movement in the market.
The technical approach provides forex trading strategies based upon short-term currency trading. You will find that it has to do with historical pricing and the overall volume of the currency itself. If you ask others there will be some who believe fundamental analysis is all you need. Then of course there are individuals who think that technical analysis provides a more realistic approach.
Both of them are partially right, because you should be taking advantage of them both. Today we want to show you a few examples that can help you understand why using each one can provide you with the necessary tools to be successful.
Utilizing Fundamental Analysis for Currency Trading Strategies
Whether its unemployment, the deficit, inflation, or interest rates at the bank, each of them play a major role in currency trading. So let’s say you are trading the USD/JPY (US Dollar/Japanese Yen) and need to know where the market is headed. Things such as gold and crude oil will end up have a huge effect on the dollar.
Now, if Japan notices their exports are suffering because of the price of the dollar, in most cases they would push the yen down in order to make more money on the exports. You have to know these things, and they should be a part of everyone’s forex trading strategies. The good news is the data on the economy is released before prior intimation or fixed intervals.
Utilizing Technical Analysis for Currency Trading
Watching the charts on a continuous basis is how you become successful when using technical analysis. Japan’s candlestick chart is a great place to start because it revolves around price movements, and entry or exit signals.
If you’re just starting out in the currency trading world, the candlestick charts provide you with distinct patterns like:
1. The Marabozu: Here you have either black or white candles that won’t have any shadows. If you’re utilizing a white candle then it will offer information on a bearish trend or bearish reversal. The black candle is built around a bull run continuation or bullish trend reversal.
2. The Doji: This deals with a skinny candle that is set up as a single line. It helps you understand signals, especially when there are no buyers or sellers left. The reason for this is because the opening and closing price ends with a similar number. You will find that this can result in a trend reversal.
Forex trading strategies should also include resistance and support levels. When the currency trading price jumps, but hasn’t gone through, this would be considered resistance. Support levels deal with the prices plunging but never piercing through. However, if the price shoots through either of them, the theory suggests that they will move in this direction for quite some time.
In the end it’s all about using every resource you have available when setting up your forex trading strategies. We recommend using more than one so you have the best chance to be successful in currency trading.