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Forex Trading Strategies

by kraju

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Online currency trading takes place all over the world, throughout the day for five days a week. When online currency trading began, only institutional investors such as investment banks and hedge funds were able to trade. But as online trading expanded, individual investors and small currencies were allowed to participate in the forex markets. Investopedia defines forex market as “The largest and most liquid market in the world with an average trade value of $ 1.9 trillion a day and includes all of the currencies in the world”.  Similar to other forms of investment, currency trading is about supply and demand, the spot market lets the investors to buy and sell foreign currencies at the current trading price, spot market is the largest currency market. Futures markets are another option which lets the investors to trade different currencies including the Swiss franc, British pound and Japanese Yen.

The strength and weakness of global currency fluctuates continuously and the objective of currency trading is to anticipate a rise in a currency’s value in relation to other currencies, foreign exchange can also be used to minimize a loss in the value of funds that may occur due to inflation or other negative forces in the market. Currency fluctuates for many reasons, but supply and demand is the major force that drives global currency prices. If a currency becomes scarcer within a country or demand for a currency increases worldwide, the value of the currency will increase. Conversely, in a country where too much money is available and or there is little demand for the currency, the currency devalues.  Factors that contribute to the demand for a particular currency include the level of balance of payments and economic growth.

Why trade Forex?

The extreme volatility of forex markets makes it possible to make more money compared to other traditional equity investments; however, it is important to note that the same volatility could lead to huge losses. Other benefits of trading in foreign exchange are the relative low costs of trading compared to trading in stocks.

How to Start Trading?

Before starting to trade in the forex market, it is necessary to study foreign market and currencies using financial newsletters and researching on the internet, it is also advisable to seek professional guidance from a forex trading specialist. Watching the trading patterns of large banks that use advanced forex trading strategies would be of great help, these banks have a lot of money at risk hence they employ the best strategies. You can start trading with an undervalued foreign currency and taking into consideration your financial capabilities make a purchase, you have to wait till the rate of foreign currency you purchased equals to that of your own currency. Once the currencies are level or appreciate to a certain extent you can convert the currency back to your own currency for a profit. The forex market is unregulated and the lack of a central market makes currency trading an over the counter (OTC) transaction. Individuals, corporations, governments and other institutions have access to the foreign exchange market.

Technical Indicators- Moving Average Converging Divergence

Technical indicators help in the process of price prediction in foreign exchange trading, the Moving Average Converging Divergence (MACD) is one of the most reliable indicators, professional traders rely on this indicator. MACD is the difference of a 12 and a 26 exponential moving average, it subtracts the 26 period from the 12 period and the result will be displayed in a single line called the MACD main line.  It also indicates if market is overbought or oversold, when it is overbought, it is riskier to go long and when it is oversold it is riskier to go short. A rising MACD indicates a rising price, when the two lines meet it is considered a neutral situation. Finally a decline below neutral indicates a short term declining trend.

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