Trading for the long-term and with a long-term strategy stands out as one of the safest way to invest in the forex market. That’s true even if you see so many traders elbowing each other for short-term gains. If you’re planning to trade the bigger picture of the market, you have to take into consideration a number of extremely important aspects of a currency pairs. Let’s discuss them.
Interest Rates
Ignoring interest rates when you’re trading in the forex market is a gargantuan mistake. Never believe otherwise.
When you decide to hold a currency trade for longer than a day, you’ll observe an event called “rollover.” Depending on the currencies at play and the overall direction of your trade, you’re either pay or earning a little bit of interest.
Generally speaking, when a country imposes an attractive amount of interest on its currency, you’d see world traders buying that currency against weaker currencies. This thus creates a trend.
Interest rates are important, so keep close tabs on any news from the Federal Reserve, the European Central Bank, and the Bank of Japan, among others.
Fundamentals
Along with interest rates, you also have to look into the fundamentals of the economy of the country whose currency you are trading. You can think of these fundamentals as the real bosses that control or tell something about the economy.
Some examples of fundamentals you need to keep track of are employment data, core producerindex, gross domestic products, and even the political climate in that country. Since you are trading the bigger picture here, you need to keep track of these bigger bosses of the economy.
Technicals
Technical analysis can mean different things for traders, depending on the way they use it. For one trader, technical analysis may be about moving averages, while a completely different picture pops out of another trader’s head.
When you are trading for the long-term, you want to search and find for technical aspects that can back your trade up. For instance, deciding that you want to buy a specific currency for the long-term, you wouldn’t want your technicals indicating that that currency is overbought or has a huge chance of being so in the future. In addition, technical analysis helps keep you from entering a trade at the wrong time.
In general, having the right idea about the current and future situation in the market may not be as good as having the technicals nodding in agreement with you.
On the other hand, technical analysis shares what other forms of analysis have: misjudgments and biases, which can definitely ruin great trading and investing plans.
The Importance of Weekly Charts
If you’re feeling like you’re just guessing on what’s happening with a pair for a day, you pause and take a look at everything on the weekly chart. Doing so may let you notice some things you didn’t notice before, or it can shed some light on what’s happening at present in the market.
For instance, a kneejerk move on a daily chart may appear mundane or trivial on a weekly chart. Weekly charts would then let you have a better feel of the current market situation. It’s looking at the whole portrait instead on just focusing on the frame.
