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Forex Technical Analysis Vs Fundamental Analysis Choose One Which Is A Better Strategy

Author: George Thomas
by George Thomas
Posted: Nov 26, 2021

This is a subjective question, depending on the fact whether the trader is keen on intraday or wants to hold the positions. Since forex is a volatile asset, day trading is more likely, with an almost equal probability of a trader looking at it in the long term.

Trading strategies mostly depend on the time window for which the trader is trading. The biggest being in the long term, the shortest being scalping trading strategy.

Long term trading strategies can ask the trader to dig into a lot of fundamentals. Day trading needs a good hand over reading charts and the eye to detail, that is where the money lies.

To dig into which is a better trading strategy, let us analyse two situations, one where the trader is looking for long term results and one where the trader wants the short term results.

Let’s tall when the trader wants short term results:

For Short term results in forex, the trader will want to look at trading strategies that will generate returns every day. To generate money every trading day, the first thing required is capital. Then, the correct capital applied in the right way, at the right place, in that order, will generate returns.

Now the question is what is correct capital, what is the right way to apply it and what is the right place to do so?

The correct capital is again subjective since there is a short term gain needed, either the capital has to be big enough or there has to be some sort of derivative involved.

If you are trading in the market for the first time, there should be no derivative involved at all. The derivatives offer you a bigger position, but there is a bigger risk involved as well. The market works on a simple rule, bigger the risk, bigger the reward.

But as a novice, traders don’t hold the required experience that is needed to mitigate the involved risk.

Derivatives can be of different types, most common being leverage and CFDs, futures being the more complex ones.

A lot of traders use leverage and still, not a lot of them exactly know how it works.

Let’s see what the game of leverage really is and how margin calls work.

Leverage:

Leverage is generally depicted in the form of 1:100 (for example): if the trader invests $1000, then with the 1:100 leverage, they can play on a position that is worth $100,000. Think of a situation where the trade goes right. It’s all well and good. But then think of a situation where the trade has begun going wrong. Since it has just begun, the trade will go further wrong.

Assume that $700 out of the $1000 have perished, but you see an indication that after a few more minutes the trade will reverse and bring in profits. But remember, till here, your 70% of the capital is exhausted.

Here, the broker will make a margin call to the trade to fill in funds. If he or she cannot do that, then the broker will exit the trade on the trader’s behalf. No matter if that trade would have given you a million dollars. Once the margin call is made, full funds immediately.

CFDs are other derivative instruments that purely work in speculation mode. The traders are either the sellers or buyers of a contract. The contract matures and holds the value that is based on speculation. If the asset sees a price hike, the seller is in profit and if the asset plunges, the buyer is in profit.

The right place to invest your capital:

If you have already decided to invest in the forex market, then the right place is an asset that is just volatile enough to generate the right profit for you. Generally, the volatile pairs are defined by the period of volatility they have throughout the day.

No doubt that the forex market is open for 20 hours a day but that does not mean that you can trade any pair at any time of the day. There are specific pairs that are time-specific to volatility. Make sure that the pair you are investing in, is worked on during the time when it is most volatile. For example, USD JPY is most volatile during 1200-1500 GMT.

Also, not all the pairs are volatile with the same intensity. For example, USD/AUD is the least volatile pair and USD/SEK is one of the most volatile pairs.

Bottom Line:

Forex trading is the most volatile market in the world. Over 6 trillion daily trades execute in the forex market. Everyone wants to try their luck in the fx market. You can make a good amount of money if you have the proper trading style and perfect understanding of the market. The broker plays an important role in your trading therefore choosing the right brokerage firm is important. ABinvesting is the leading online broker that offers trading on more than 300+ trading instruments with advanced trading platforms. Read our ABinvesting Review.

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Author: George Thomas

George Thomas

Member since: Jul 13, 2021
Published articles: 18

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