Traders keen to make a profit on the advantages that come with a specific size and volume of the forex market and must consider the method or combination of analysis suits their trading style. At the foundation level, traders need to understand some pillars of forex trading.
- Fundamental Analysis
Currencies are traded in a market. And from there, a trader can take a look at the supply and demand. Economic growth, interest rates, inflation, employment, and political risk are all part of the things that affect supply and demand for currencies.
- Technical Analysis
The price charts give a lot of stories, and most forex traders lie on them in making a trading decision. Also, charts can indicate trends and vital price points, in which traders can enter or exit the market if they have the knowledge on how to read them.
- Money Management
This is an essential part of trading. Every trader must know the method of measuring their potential risks and rewards. Then, they will use this to judge entries, exits, and trade size. A lot of forex traders employ these pillars in varying forms to craft a strategy that they think suits them. After finding the balance between these central systems, they will shift their attention to specializing and honing their skills by keeping the latest news about politics, monetary/fiscal policies, etc. and making informed decisions based on the details they have.
Also, a technical trader may use different indicators/drawings and place trades resulting from these technical signals. And client sentiment can also provide forex traders a piece of information as to potential reversals, market entry, and exit points.
Reading Forex Quotes
For additional information, here are some tips to know in reading forex quotes.
- Bid and Ask prices comes from the perspective of a broker. Traders tend to buy currency at the ask price and sell at the bid price.
- The base currency is always the first currency in the pair and that the quote currency is the second currency.
- The tiniest movement for non-JPY currency pairs is one pip (a single-digit movement in the fourth decimal place of the quoted price and a single-digit action in the second decimal place for JPY pairs).
- Lastly, the spread is the initial hurdle (cost), which traders realize in a trade.
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