According to the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivative Market Activity conducted by the Bank for International Settlements, the forex market generates $3.2 trillion dollars worth of transactions each day, the majority trading done by speculators. The appeal of the forex market for speculators comes from the high leverage, liquidity, long trading hours and volatility, which enables someone with very little initial capital to make money trading currency online.
This article goes through what a professional trader could do to develop a successful strategy. Coming up with forex signals and forex signals ranking is not simple and depends on your time frame. Most equity managers who have a long time horizon and want to hedge a position, would look at Interest Rate Parity, an equation which links interest rates, spot exchange rates and foreign exchange rates.
Forex traders have a short time horizon and mostly rely on technical analysis with a touch of fundamentals. The reason for that is fundamental analysis is complex and predicts longer term trends as illustrated above. Fundamentals that work for a short term strategy go as far as following key economic news such as Consumer Price Index, interest rates announcements, inflation etc.
Technical analysis is based on indicators and patterns examining price and volume trends, studying support and resistance levels, identifying trending and ranging price action. There are literally thousands of indicators starting at moving averages, Bollinger Bands, various oscilallors, volume indicators and ending at more advanced Elliott Waves and Fibonacci studies.
Experts suggest forex signals ranking based on a combination of both fundamental and technical analysis, with which you can make long-term projections and also determine entry and exit points. Having said that, there are literally millions of strategies you can use or backtest as far as they work for you.
Simplicity of a given strategy and discipline are key components to forex signals ranking. You don’t have to follow 10+ technical indicators when the majority will deliver the same results. Good forex traders follow a few indicators driven by different factors to make decisions and execute.
Developing your trader psychology and being able to stick to your strategy and trade with no emotion are imperative to execution. Emotions only cloud your judgement and analysis and you either end up getting out of profitable trades too quickly or are unable to limit your losses.
Trader psychology is one reason why a few forex robots have come on the market: robots follow the designed strategy and execute it as pre-planned. And so should you! Or you will end up losing your money.
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