Getting Started in the FOREX Market
The FOREX market is the largest trading market in the world, and growing numbers of individuals are being drawn to it. But before you begin trading in it, be sure that the broker you choose meets certain criteria, and that you take the time learn the market and find a trading strategy that works for you. The best way to learn to trade FOREX is to open up a demo account and trade with it.
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Just as in equity markets, the two basic types of strategy in the FOREX market are Technical Analysis and Fundamental Analysis. But among FOREX traders the most common strategy used by far is Technical Analysis. Let’s compare the two.
Fundamental Analysis in the FOREX market is often very complex, and it's usually only used to predict long-term trends; some investors, however, do trade short-term based strictly upon news releases. There are many different fundamental indicators of currency values, and they’re released at various times.
But these reports are not the only fundamental factors should be watched. There are also a number of meetings that are held periodically, from which come quotes and commentaries, and they can have a very definite effect on markets as well. These meetings are often called to discuss interest rates, inflation, or other issues that affect currency valuations. Even changes in wording when talking about certain issues can cause spikes in market volatility.
Reading these reports and examining the commentary can help FOREX traders using Fundamental Analysis to obtain a better understanding of long-term market trends. They can also help short-term traders to profit from extraordinary events. If you choose to use a fundamental strategy, be sure to keep an economic calendar close-by so that you’ll know when these reports are released.
Technical analysts in the FOREX market evaluate price trends. The only real difference between Technical Analysis in FOREX and Technical Analysis in equity markets is the time frame: FOREX markets are open around the clock,24 hours a day. As a result, some forms of analysis which factor in time must be modified in order to work in the 24-hour FOREX market. Some of the more common forms of technical analysis used in the FOREX market include Elliot Waves, Fibonacci studies, and Pivot points. Many technical analysts combine these studies in order to make more accurate predictions. The most frequent combination is that of the Fibonacci studies with Elliott Waves.
Most successful traders develop an investment strategy, and with repeated use, perfect it over time. Some people focus on one calculation or study; others may utilize a broad range of analysis tools to determine their investments. Most experts suggest using a combination of both Fundamental and Technical analysis. It is the individual investor, however, who must decide what fits and works best for him or her. This is usually accomplished through trial and error.
Here are several suggestions to consider as you get started in the FOREX market: 1) Open a demo account and paper trade until you are comfortable and confident that you can make a consistent profit. In other words, isolate your learning mistakes to the time in which they won’t cost you. 2) Trade without emotion. Don't keep mental stop-loss points. Always set your stop-loss and take-profit points to execute automatically and don't change them unless it’s absolutely necessary. Make your decisions and stick with them. 3) Stay with the trend; if you go against it, make sure you have a very good reason. Movements in the FOREX market tend to be in trends more than anything else; you therefore have a higher chance of success in trading with the trend.
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