How To Profit From Forex Signals

by Alberto Pau
(London, UK)

These are the basic steps you need to do if you want to use forex signals to your profit:

1. You need to become familiar with technical analysis. In a couple of words, technical analysis is the study of the closing prices of currencies to determine the optimal time to buy and sell.

1. You also need to become familiar with fundamental analysis. Fundamental analysis considers exogenous factors such as governments, central banks and other economic conditions in assessing the value of a currency pair.

All in all, the theory in fundamental analysis is fairly well established. But when it comes to technical analysis, there are countless forex trading signals. The oldest and probably the most profitable one is moving averages. Moving averages are simple calculations of the average closing price of a currency in a given time period. By comparing the moving average to its current price you can decide whether to buy or sell the currency.

Another forex trading signal which is very common in dealing rooms is the Stochastic Oscillator. The stochastic oscillator compares a currency?s current price to its high price and low price in a defined time period. Once again, the current forex rate will help you decide whether to buy or sell the currency pair.

However, you can look at other factor in addition to just the exchange rate. One thing they consider is the ?momentum?. Intuitively, as the price of a currency pair increases, it gains momentum. As the price of the currency pair stops rising, its momentum slows or it stops all together. Momentum oscillators allow you to target the temporary spikes in exchange rates. This allows people to make quick profits trading forex without having to hold the currency for an extended period of time.

One of the less intuitive formulas is Fibonacci Retracements. Fibonacci Retracements use ratios that are calculated based on a numbers series commonly recurring in nature. These ratios are used to determine the best time to enter or leave the market.

Alberto Pau (BSc, MSc) is a leading online options trader and risk management consultant in the forex and commodity markets. Alberto spent 7 years trading derivatives (both vanilla and exotic) for some of the world?s largest investment banks.

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