Forex Market

Working out a game plan for the Forex market

The Forex or Foreign Exchange Market is the world's oldest, biggest and most liquid. It works round the clock on all week days, and its reach is global, which makes trading here a unique experience. The Forex market deals mainly in five currency pairs, with the U.S. dollar figuring in all five combinations. It is set against the Japanese Yen, the British Pound, the Swiss Franc, the Canadian Dollar and the Euro. The idea is to make money by buying/selling currency pairs based on speculation regarding the trend of the exchange rate.

Forex trading strategies

To be successful however, your deals should not be based on pure conjecture. Your guess needs to be an informed one for you to decide which part of the currency pair to buy and which to sell, and so make a profit. There are ways to make sure your guess is informed. Successful Forex traders follow certain strategies so that they maximize their chances of making a profit and minimize losses. These strategies can be divided into two types, depending on whether they are based on fundamental or technical analyses.

Fundamental analyses

Broadly speaking, fundamental analyses allow the trader to have an insight into the sources of demand and supply for a country's currency, while technical analyses allow you to gauge how strong these sources are. Determining the sources of demand and supply is like evaluating an entire country, but don't be discouraged by the obvious magnitude of the task. There are enough sources of information that are accessible. Look out for details of the non-farm payrolls, the PMI or Purchasing Managers' Index, the CPI or Consumer Price Index and figures relating to durable goods off-take and retail sales. Also, read reports from financial authorities regarding interest rate trends and inflation, which have a bearing on currency values. Find out what the Federal Open Market Committee and the Humphrey Hawkins Hearings have to say. These are all indicators of long-term market trends. Ask your broker to help you gain access to these. And here's a tip: get yourself an economic calendar, so you'll know just when these reports are expected, and you don't miss out on valuable information.

Technical analyses

Technical analysis in the Forex market works just as it does in the Equities one, except that the time frame is different, as, unlike the equities market, the Forex market works 24 hours. Elliott Waves, Fibonacci studies, Parabolic SAR, and Pivot points are some types of technical analysis, and some traders find that combining them works even better than using them individually.

Try a mix of forex strategies

You might also decide to use a combination of fundamental and technical strategies to decide on your game plan vis-à-vis the Forex market. A work of caution: None of these strategies guarantee success. If properly understood and applied, they will only increase your chances of making a profit. You need to experiment, play around a bit with the various options, before you come up with something that suits your style of functioning and works well for you. Good Luck! (for more info: visit ForexTradingPal.com)

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