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In the forex trading world there are two primary types of forex trading strategies. One of these forex strategies is based on a fundamental analysis and the other forex strategy is based on a technical analysis. As a forex trader you will have to integrate both of these strategies in your complete forex trading system.
The first primary type of forex trading strategies is fundamental analysis and this trading technique pertains to the economic and political conditions that may affect the currency prices. Forex traders use fundamental analysis to research information about economic policies, inflation, growth rates and unemployment rates. Traders accomplish this by using news reports about the areas where the currency they will be trading on. This information helps to provide a big picture of the economic conditions that will affect specific currencies. When dealing with fundamental analysis you will come to learn that the two more important fundamental indicators are international trade and interest rates. Other indicators will include, Durable Goods Order, Producer Price Index, Consumer Price Index, Purchasing Manager’s Index, and retail sales.
The second primary type of forex trading is technical analysis. Forex technical trading takes into account the fundamentals. Technical analysis also factors in the greed and the fear of the people who will influence currency prices. Technical analysis looks at both inputs that make up the price, simply looking at the forex charts and lets that tell them where to execute their trading signals. When traders use technicals for plotting the entry an exit points into the forex market they then supplement their findings with fundamental analysis. The upside to technical trading is that it is less time consuming and you are more than likely to keep your emotions out and away from your trades. Technical analysis let’s you trade on reality, you will trade on the truth of the market price and not what your feelings say the market price should be.
While you will learn that both types of trading strategies are important for profitable and successful trades, you will also learn that traders tend to lean towards one or the other type more or so. When you incorporate the technical style of trading, you must be prepared to deal with mathematical concepts that are necessary to manipulate currency pricing data and when you incorporate fundamental analysis you must be ready to deal with many economic factors that will be necessary to base your trades on.
The most successful traders include both the fundamentals and technicals when trading. As a technical trader, you should understand what news events are being released and how they could potentially affect your trades. A good example would be if a currency appears to heading into resistance on a currency chart and one of those countries are expected to make a major news announcement, it would be good practice to stay out of the market until after the news event. Then once price has settled down, you can analyze what this data means to your bias and take the appropriate action.