Developing an investment strategy and applying it with a distinct edge is a valuable key to an investor’s success. Therefore, an investor should learn different currency trading techniques to get some idea about his most comfortable trading style. In this writing, we will describe the technical and fundamental Forex trading strategy.
Chart analysis and previous price fluctuation examination are the basis of technical trading strategy. Analyzing the past price action, the investors assume the future price action. Choosing from a multitude of studies, a trader can build a technical trading method. Moreover, a trader can explore various sub-categories of this strategy which it holds within it.
A trading plan incorporates some of the most effective building blocks such as MACD, Moving Average, RSI (Relative Strength Index), Bollinger Bands, Stochastic, Volume and Keltner channels, etc., dozens of technical indicators available in most Forex trading platforms. Some of the media even allow a trader to create and backtest their strategies using the built-in-indicators. Moreover, a trader can backtest their approach at the different platforms without having any programming knowledge.
Geo-political and economic news releases are the basis of fundamental analysis and using these data, this strategy drives the trader’s trade decision process. This strategy represents the financial performance, but in the entire approach, a trader uses the financial health information. Using the information in this strategy, a trader can determine the currency pair’s future price moves. Always remember, CFD trading is all about finding the perfect trades. Unless you become skilled in analyzing the market data, it will be a big challenge to overcome the obstacles. So, take your time and learn about the impact of the major news so that you can scale your trade accordingly.
Currency’s bullish sentiment may boost when a country announces a better result than the expectations in the economic report. Currency’s bullish sentiment boost leads to the increase in currency price. On the contrary, if a country’s essential financial statement announces a worse result than the expectations, then the currency’s bearish sentiment may boost by this. Currency’s bearish sentiment boost up leads to the decrease in currency price.
For example, suppose the central bank of the EU decides to increase the Euro Zones interest rate. In that case, a fundamental investor will anticipate that Euro VS other most important currencies price will decrease. Trader’s basic assumption that the country’s condition would be less attractive due to increased interest rates. And a reflection of deteriorating spending conditions can result in more devaluation of the Euro.
So, the trader who follows the fundamental strategy can conclude that if the EU decreases the interest rates in Euro Zone, then the EUR/USD exchange rate will decrease. Of course, this would not happen in reality; the above statement is an example of only how the fundamental analyst takes a trading decision.
So generally, economic data and news releases are the basis of fundamental traders to speculate the price movement. If the news release exceeds the expectations, an investor may assume that the respective currency will appreciate the change, and the trader will buy the respective currency.
If the news release is worse than expected, an investor using the fundamental strategy will sell the currency, assuming the respective currency’s depreciation.
Based on the analysis approach, we can divide the Forex traders into two types. The two types of foreign exchange analysts are technical and fundamental analysts. Technical experts consider that based on chart analysis techniques, the trader can forecast future price moves. They believe that already the market price incorporates the most available information. At the same time, the fundamental specialist believes that technical assessment is nothing but a self-fulfilling prediction. And they also think that the study of the political, economic, and social conditions is the best way to evaluate currency movement in the foreign exchange market.