Forex traders generally employ one of two strategies while trading currency - Technical Analysis or Fundamental Analysis. Each of the strategies themselves can be executed differently, through means that individual traders pick for themselves. However, technical or fundamental forms the guiding principle behind a trader's actions and decisions in the market.
Technical Analysis relies heavily on past performance of currency pairs to predict future trends and events. This type of analysis uses statistical and mathematical tools, indicators and charts to help predict with mathematical certainty, how a currency might behave, given its past performance. Because it is such a scientific method, time intervals play a vital role in calculations of technical analysis. The charts and indicators used in this analysis provide information along specific time intervals: minute, hour, day or week. Therefore they are widely used by traders who enter time-sensitive trades, such as day traders.
The importance of technical analysis in day trading makes it an indispensable tool for small traders, who are looking at making small profits every time they trade. Charts and indicators make it easy to catch trends when they are forming, and a shrewd small investor looking at making a quick profit can benefit with a minute or an hourly technical analysis of a chart. Another benefit of this analysis form is that it can be automated to a great extent, thanks to trading software and programs. Because it is so mathematical in nature, software can be programmed to enter or exit trades based on certain values and conditions. As day traders graduate to full-time trading, this is generally what they do.
It is evident thus, that technical analysis is largely for traders who trade small, and make small but many profits during one trading session. Those who use it are focused on immediate events and results and not so much on the larger, global economic picture. A different type of strategy exists for traders who enter and exit traders for a longer period, based heavily on how the economics of a particular country or region are shaping up. This kind of strategy is called fundamental analysis.
Fundamental analysis is somewhat the opposite of technical analysis, in that it emphasizes on economic and political affairs and events, major financial policy changes, natural or man-made calamities to predict currency movements. While technical analysis assumes that mathematical information is all that is necessary to predict currency prices, fundamental analysis draws heavily on market psychology and global economic affairs to determine price changes.
It becomes evident then, that fundamental analysis requires a lot of patience and access to and an understanding of the entire financial market within which forex market functions. Thus, it is used by large investors and traders - banks, companies and financial institutions. It requires having large amounts of insider knowledge and resources to gauge or 'guess' how financial policy changes in one part of the world can affect currency pairs in other. These players trade volumes large enough to affect market movements and therefore prefer to look at the bigger picture using fundamental analysis.
Given this distinction, a trader can pick whichever analysis he finds suits his trading plan and risk profile, and sharpen the tools he uses to execute that strategy.
Adam has been Trading Forex for 5 years. He has tried and tested many automated software tools, trading systems and so called copy a trader systems. Although Adam now trades for a living on a daily basis it has taken a trial and error rollercoaster to get there. Adam owes his success to the World Forex Club for their live rooms, training and above all patience in helping him reach his goals.
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