Currently, there is a wide availability of opportunities that can help investors make more informed trading decisions. However, we know that a diverse portfolio is one of the most effective ways to pursue impressive results with relatively mitigated risk. Of course, all trading comes with risk, which is something you must keep in mind no matter which market you participate in. Some traders also choose to try new and varied CFD investment options other than shares, ETFs, or indices. Currency trading or foreign exchange can be a vast and exciting option for any knowledgeable investor.
Currency trading is an online trading option available in virtually every part of the world with the potential to take advantage of price fluctuations of many of the globe’s top currency pairs. Today, we aim to share the basic technical analysis of currency exchange or Forex trading. We will also share some valuable tips you should keep in mind when trading Forex. Let us start by learning the definition of currency exchange.
What is Currency Trading?
Currency trading, also popularly referred to as foreign exchange or Forex, is the process of converting currency from one form to another. Users can trade between two different currency forms from anywhere in the world. In a currency exchange transaction, investors buy and sell two separate forms of currency, intending to boost their initial investment. When tradingin foreign exchange, the investors must consider several factors like socio-political aspects, inflation, recession, etc. in order to make well-rounded trading decisions.
Did you know? Between 2001 and 2019, the USA market observed almost 6 billion U.S. dollars forex daily volume for the USA dollar currency. This clearly shows the popularity of currency trading.
What is Technical Analysis?
In simple words, technical analysis refers to the process of studying the foreign exchange market, identifying potential investment opportunities, and investigating the market trends to arrive at potentially profitable decisions. This method of market evaluation contrasts with fundamental analysis with a prime focus on recent price change patterns and trading history. Technical analysis aims to find trends and insight for investors regarding when to enter or leave the market.
Things to Keep in Mind When Trading Currency or Forex
Now that we have explained what technical analysis means for currency exchange, it’s time to share our valuable advice and suggestions that you should remember when tradingin Forex. Here are our top tips that will help you come to knowledgeable conclusions during your analysis and help you become a more informed trader.
Follow both daily and weekly charts to make wiser predictions:
As an avid investor in currency trading, we advise new traders to follow both daily and weekly charts religiously. Opting for just daily charts might fail to give you an inaccurate representation of the performance of any currency and contribute to you making a hasty decision, reducing your returns. You should evaluate the daily charts more closely to arrive at the optimal entry and exit points.
Weigh the benefits of day trading vs. swing trading
Some beginners in forex trading without proper technical analysis skills avoid day trading at all costs. Day trading involves high volatility with a low possibility of boosting your returns. Therefore, they may choose swing trading instead, which could be a more sensible option that allows you to analyze the market. Based on your level of trading experience, the choice is up to you.
When making a trade, be aware of market momentum
Foreign exchange trading is a highly unpredictable market with high fluctuations, so before making any estimates or assumptions, take stock of the current momentum. No one can accurately predict the path of the Forex market and is only limited to making calculated estimations. Follow indicators like the Relative Strength Index and stochastic before deciding on your foreign exchange investment strategy.
Gain a good understanding of support and resistance trading levels
For every currency trader, it is essential to understand what support and resistance mean and learn to identify these levels. As a beginner, test your predicted support and resistance levels at least three times before you start to execute trade decisions based on them. Also, try to sample these levels at different time frames for a more effective strategy in your Forex trades.
Be patient and trade with foreign exchanges using simple systems
One of the most significant pieces of advice for any beginner who is showing interest in Forex trading is to start simple and stay patient. When currency trading, investors will need to demonstrate high patience. We advise beginners to keep their portfolios simple with calculated transactions. A simple system will help you track Forex better, offering more insight into market trends.
To Sum It Up
Above, we explained the fundamentals of technical analysis for currency trading and are hopeful you will find the information highly valuable. We are sure that this article has made you more educated and aware of the ins and outs of forex trading by imparting basic knowledge about it. This understanding will help you make intelligent decisions the next time you trade in Forex. Follow our tips and suggestions to take a well-rounded and educated approach to your currency investments.