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Some key Strategies in Forex Trading

Develop Your Own Forex Trading Strategy

Both technical analysis and fundamental analysis in isolation has failed to keep pace with the globalization of financial markets. The advent of personal computers and modern global communication systems coupled with the explosive growth of the Internet has resulted in global financial markets being interconnected. Now seemingly unrelated events happening in one market have profound effect on markets elsewhere. This is one reason why you should focus on formulating a forex trading strategy.
There is yet another profound reason to have your own forex trading strategy.When you invest in equities (stocks) and bonds, your investment is based on the intrinsic value of the product you buy. For example, for any equity you buy the intrinsic value of the stock stems from the dividends possibly declared on those stocks. You could then evaluate the income streams and correlate it to stock prices. But such an approach is not possible when you invest in forex currencies. That is because, if you make a forex investment and then leave it idle perse, it isn’t going to produce an income for you automatically. In other words, as a beginner you would find it difficult to figure out the intrinsic value of your forex investment.
There is no dearth of strategies in forex trading. The Internet is full of different kinds of forex gurus advising you on all kinds of esoteric forex strategies. The point is, you must select a forex strategy that suits your trading style. A strategy that just does not fit in with your trading style is simply useless. Therefore, it is better you evolve your own unique forex strategy after rummaging through different strategies you might come across on the Internet. This article is an attempt to make you understand a couple of vital forex strategies that you could of course keep at the back of your mind while working out your own strategy to make wealth in forex markets.

Forex and Gold Prices

The importance of gold in the development of the monetary system over the last century is a vital strategy parameter you ought to consider. In an earlier article we talked of the relationship between oil and oil prices to forex trading. Apart from oil, there are other commodities whose prices have a strong co-relation to currency movements in the forex markets. Gold is one such commodity equally important as oil in its relevance to forex trading.
For several centuries, gold has been the cornerstone of monetary systems worldwide. Until 1914, the British Gold Standard was prevalent, and that period in time was reckoned as a period of stability in financial markets. Thereafter it was only in 1944 that the US Gold Exchange Standard was brought in place. This meant having a system of fixed exchange rates, with the fixing of the US Dollar at $35 per ounce of gold and then fixing the price of other currencies to the dollar. In other words, this system allowed non-US Central banks to convert their US dollars to gold whenever they feared erosion in the purchasing power of the dollar. However in 1971, this system was terminated and consequently the World monetary system came off the US Gold Standard enacted earler in 1944. Nevertheless an informal relationship between gold prices and currency movements do exist to this day.
The price of gold usually follows that of oil. In other words, if the price of oil goes up, the price of gold too goes up usually. The same is the situation when the price of oil goes down-it relates to dipping gold prices. One of the reasons why gold is relevant to forex trading is the fact that historically people have used gold as a good bet against inflation, especially as the price of gold always seems to keep rising.

When do you take in the profits?

A key facet or strategy of forex trading is the timing of your own decision in raking in the profits. For example, when do you decide it is time to garner the profits of a particular trade? When you buy currency in the low and you are ahead in trading, it simply means that your currency has surged ahead—it is now time to realize the profits.Otherwise you might well see a reversal of trend and loose out in the bargain. Remember, there is always the potential to buy currencies low and sell high in forex markets, which is the business rationale that has led you to invest in forex markets. So the moment you are ahead, rake in the profits by closing the deal. Initially this would certainly be a good strategy to adopt. But as you gain experience in forex trading, you could refine this strategy and stay a bit more on the profit curve before deciding to close the deal and make the profits. The point is, you should fine tune your strategy as to how long you could safely remain on the profit curve before you decide to make the profits. A lot of this comes from experience. There is no substitute to that. So to summarize, firstly begin forex trading in a prudent way. Gain experience, and from that experience formulate your own trading strategies.

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