If you want to make money in the Forex markets you will want to develop a currency trading system. This will include picking the best currencies to trade in Forex as well as applying live Forex signals to profit from changes in market sentiment. The basic components of a currency trading system are the choice of how much to trade, which currency pairs to trade in, use of an alert service to spot opportunities, fundamental analysis of Forex pairs, and technical analysis to understand current market sentiment.
Picking Currency Pairs to Trade
The best currencies to trade in Forex are those that will make the most money. With the use of an alert service one can spot the best currencies to trade in Forex based on market volatility. However, the best currencies must also trade in high liquidity, high volume, and with transparency. Technical analysis of Forex pairs is easier and commonly more profitable in the major currencies. Fundamental analysis of Forex pairs is also more accurate in the major currencies making these the best currencies to trade in Forex.
Fundamentals Are Fundamental to Trading Forex
Fundamental analysis of Forex pairs revolves around the news of the day, politics, monetary policy, balances of trade, and both pronouncements and actions of central banks. While technical analysis can give traders an advantage in short term trading, the fundamentals are what drive currency prices over the long term. How to trade Forex successfully is typically to use fundamental analysis of Forex pairs to gain a sense of market possibility and likely range of trading. And fundamentals have to do with both currencies of a Forex pair. How to trade Forex successfully is to be aware of the fundamentals that drive the each individual currency that your trade.
History Repeats Itself and Technical Analysis Has the Answers
Technical analysis in the Forex market is based on statistics. A given price pattern can be highly indicative of a coming price increase or fall. In a sense history repeats itself and Forex technical analysis uses the past to predict the immediate future. Statistics work better when the numbers are larger. Thus technical analysis of major pairs is more accurate than technical analysis of minor Forex currencies. There is more money in the major currencies which increases the amount of trading but because better analysis begets better results this also increases the trading volume, liquidity, and profit potential. The majors are listed below:
- United States Dollar, USD
- Euro, EUR
- British Pound, GBP
- Yen, YEN
- Swiss franc, CHF
- Canadian Dollar, CAD
- Australian Dollar, AUD
Defining and Redefining a Currency Trading System
There are numerous ways to approach the Forex market and make profits. Range traders make note of the highs and lows in which a currency pairs trades. Their currency trading system is simply to buy low and sell high. Or when trading currency options, buy calls on a currency when it is low and sell puts when it is high. Scalping is a technique in which traders stay at the trade station all of the trading day, making small, sure trades, with repeated small profits. At the end of the day a successful scalper has made a lot of money with little risk. Other currency trading system is to take a contrarian approach in over extended markets, read the fundamentals, make trades, and wait for the market to come to you.