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Foreign Exchange Analysis Strategies

Foreign Exchange

In trading foreign exchange, you only need 1 successful strategy in order to make profits. To get to that point, you need to sign up for a “demo account” and starting testing various technical indicators that might expedite your path to trading success. As a base model indicator, use a “Williams Alligator” on a 15-minute chart of the AUD/USD with a leverage ratio of 50:1 or lower. Every time the shortest line of the “Alligator” crosses over all the other lines, enter a trade in the direction of the crossover. Every time the shortest line re-crosses over all the other lines, exit the trade. Keep a journal. Count how many pips per day you collect using the “Alligator”. Try to find another indicator (or 2 or 3) that can beat how well the “Alligator” is performing.
Fundamental analysis has its role in foreign exchange trading, usually in the form of “surprises” that cause price spikes. For this reason, it’s essential that you look at the global economic calendar every morning.

How Analysis Benefits Foreign Exchange Traders

Technical analysis uses mathematics to cut through all emotions and any kind of “market noise” to show you what is really happening to pricing. To a serious foreign exchange trader, it provides a very clear snapshot of marketplace realities and is invaluable. There are over 50 indicators that you can use to help analyse pricing actions. Some of these are stand-alone (e. g., “Ichimoku clouds”); others work best in unison (e. g., “Bollinger Bands®” and “Stochastic RSI”). Not all indicators work well with the same currency pair. For instance, the AUD/USD appears to work well with an “Awesome Oscillator”, but not a “de-trended price oscillator”. You have to experiment a little bit. Use a “demo account” for such research activities.

The Purpose Of Technical Analysis In Foreign Exchange

At one end of the analytical spectrum, technical analysis can help you see “the larger picture” (e. g. trends, through the use of “Bollinger Bands®” or a “zig zag indicator”). At the other end, it can help you spot an exact entry (or exit) point in a trade (e. g., through the use of “Ichimoku clouds” or a “Williams Alligator”). The degree that technical analysis can assist you in trading is directly related to how many indicators you are aware of and how well you know how to use them. The internet is filled with some very good websites on this subject, like “stockcharts.com”. Use a “demo” to practice with various indicators and currency pairs in your spare time.

Using Fundamental Analysis In Foreign Exchange Successfully

Fundamental analysis is basically economics. There are 2 types: macro-economic and micro-economic. “Macro-“ revolves around the health of an entire country; “micro-“ gets into the nitty gritty aspects of that health. If you want to trade the AUD/USD, you will have to keep your eyes peeled for any micro-economic announcements about not only Australia, but its biggest trading partner, China. For instance, every month, HSBC publishes its “China Flash Manufacturing PMI” number and if there is a “surprise”, pricing in the AUD/USD can fluctuate wildly. Sadly, the reason for this is few forex traders trust the Chinese Government’s manufacturing capacity statistics, making this index number all the more critical. More sadly, there’s no change in this situation is in sight.

 

 

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