Trading Strategies Overview

May 31

Trading Strategies Overview

When it comes to trading on the financial markets, there are an infinite number of different trading strategies that people can employ. Each trader will in fact have his or her own way of doing things, depending on what they’re comfortable with, and what works best for them. They’re not static either; things change over time through trial and error. However, while all strategies are different, there are two broad categories that we can spit them into. These are the two methods of analysis that are used, and they are fundamental and technical.

Technical analysis and strategies that employ it, rely on numbers, charts and patterns more than anything. Simply put, traders observe the movements of prices, and work out how they are likely to continue. Often, this means watching price charts, and looking for certain patterns and markers which give signals. These signals tell the trader in which direction the values are likely to move, and therefore the course of action to take. Robotic trading uses algorithms that track figures too. This is the most widespread and popular strategy, and is generally where people start out, because it can be learned.

Fundamental analysis is quite different to technical, and many would consider it to be the more difficult to learn of the two. Fundamental analysis is less set in stone; events are open to interpretation rather than having a more clear influence. These events can include just about anything, from a scheduled economic announcement by a central bank, to a sudden and unexpected financial crisis. It’s then up to the trader to work out exactly how these events are going to make the markets move. While a lot of learning about past events is essential, there isn’t really a substitute for experience.

Of course, the truth is that both methods should be incorporated into a strategy for the best effect. They don’t necessarily need to be equal, but they do complement each other. For example, a pattern may emerge in a chart that suggests one thing, but an upcoming announcement might contradict that completely. It would then be foolish to believe that the chart is wholly accurate. Some supporters of technical analysis do maintain however, that fundamental analysis can be redundant, because the markets almost instantaneously react to events. This is a hotly-debated idea.

Go to Forexspace.com for more information about exactly what goes into a trading strategy.