Many forex traders depend on either fundamental analysis or technical analysis in their trading. The savvier among them try to combine both in making predictions about the direction a particular currency is going to follow in the future.
Fundamental analysis studies the long term effect of economic forces on currency markets whether financial or socio political using various economic indicators. Technical analysis is based on the premise that all available information is already compounded into the prices and the future prices can be predicted based on past prices.
Most of you who have been trading stocks must be familiar with the term: The January Effect. The January Effect is based on an observation that during the last few days of December and the fifth trading day in January stocks tend to perform very well.
The explanation of the January Effect is simple. During the last few days of the year, many investors are concerned about their tax returns. They try to realize capital gains or losses to file their tax returns. Many corporations also use the end of the year to face lift their balance sheets favorably at the end of the year.
The interesting fact is that seasonality is not peculiar to the stock markets. Forex markets also tend to show seasonal effects. Seasonality is defined as a pattern that occurs at a particular time of the year.
The January Effect also takes place in forex markets due to the same reasons. Many investors who are adjusting their stock positions try to convert their local currencies into dollars at that time.
However, dollar may show stronger January Effect with some currencies as compared to others. It has also been studied that dollar shows a summer seasonality when it tends to rise in USD/JPY and USD/CAD in the month of July and give back its gains in the month of August.
There are many seasonal patterns in currency pairs that have been studied in other parts of the year. Now, it does not mean that you should take these effects blindly and trade based on them.
Seasonality only shows that there are strong chances that during a particular time of the year, the chances of a particular currency pair going up or down are more.
In some years, the effect may be pronounced. In others, not so pronounces. As a forex trader, you should keep these seasonal effects at the back of your minds while trading during that time of the years. You need to just understand these seasonal patterns. - 23210
Fundamental analysis studies the long term effect of economic forces on currency markets whether financial or socio political using various economic indicators. Technical analysis is based on the premise that all available information is already compounded into the prices and the future prices can be predicted based on past prices.
Most of you who have been trading stocks must be familiar with the term: The January Effect. The January Effect is based on an observation that during the last few days of December and the fifth trading day in January stocks tend to perform very well.
The explanation of the January Effect is simple. During the last few days of the year, many investors are concerned about their tax returns. They try to realize capital gains or losses to file their tax returns. Many corporations also use the end of the year to face lift their balance sheets favorably at the end of the year.
The interesting fact is that seasonality is not peculiar to the stock markets. Forex markets also tend to show seasonal effects. Seasonality is defined as a pattern that occurs at a particular time of the year.
The January Effect also takes place in forex markets due to the same reasons. Many investors who are adjusting their stock positions try to convert their local currencies into dollars at that time.
However, dollar may show stronger January Effect with some currencies as compared to others. It has also been studied that dollar shows a summer seasonality when it tends to rise in USD/JPY and USD/CAD in the month of July and give back its gains in the month of August.
There are many seasonal patterns in currency pairs that have been studied in other parts of the year. Now, it does not mean that you should take these effects blindly and trade based on them.
Seasonality only shows that there are strong chances that during a particular time of the year, the chances of a particular currency pair going up or down are more.
In some years, the effect may be pronounced. In others, not so pronounces. As a forex trader, you should keep these seasonal effects at the back of your minds while trading during that time of the years. You need to just understand these seasonal patterns. - 23210
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading; stocks and forex. Read about Trend Forex System. Best Forex Signal Service.
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