Major Factors Causing Forex Market Trends

Trends, including both short-term and long-term price trends, are the basic requirements for any forex trades. Trends are what cause profit and loss. There are many things contributing to forex market price trends. Here are some major ones.

• International Trades and Transactions: Countries that export more are bringing money into their country and countries that import more are allowing money to flow away from their country. The first scenario strengthens their currency over time and second scenario weakens their currency because the more money in a financial system, the better growth stimulus it got.
• Governments and Central Banks: the monitory policy and fiscal policies of governments and central banks include actively managing currency interest rates and money flow. They can actively intervene in forex market to keep the currency exchange rates at optimum range for them.
• Supply and Demand: like all other financial instruments currency prices also depend hugely on supply and demand. If there is demand but the supply is low, then the price is obviously going to rise, and in opposite scenario fall.
• Speculation and Expectation: everyone related to a financial system have expectation about what the system holds them for the future. These expectations can shape both existing and future trends. The level of how much these expectations and speculations come true can cause positive or negative trends in the market.

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Technical Analysis for Forex Trading Bahrain

Many experienced traders say that using technical indicators to trade forex currency pairs is a sound strategy compared to trading of equities and stock market products. Forex market has greater predictability as central banks of the countries actively intervene in market to keep their currency exchange rate on a optimum range. There can be many patterns and formations which help traders to find good trading opportunities and right stops or price targets.

How to Create an effective Technical Analysis System?

1. Always stick to popular currency pairs: Popular pairs are interlinked and have established price ranges. But trading illiquid pairs can create high irregularities in price changes.
2. Follow Japanese Yen and Swiss Franc: These two currencies are most prone to central bank interventions and thus are easiest to predict. Trading currency pairs including one of these currencies should also be a good option for a beginner trader.
3. Stick to a handful of indicators: Simple indicators like moving averages and logarithmic returns have proved most effective in forex market. Using many indicators can create confusion and can slowdown the whole technical analysis mechanism.
4. Use neural networks: Studies have shown that neural networks models are most effective technical analysis tools to identify obscure patterns in data; and are highly suited for forex market.

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