How Seasonal Patterns Effect Forex Markets?
You as a forex trader can either use fundamental analysis or technical analysis in studying the forex markets and making predictions about the future. The savvier among you will try to combine both in making predictions about the future direction a particular currency is going to follow.
Fundamental analysis uses study of economic forces whether they are financial or socio political that affect currency markets in the long run. Technical analysis also know as Charting studies the past price action charts to make predictions about the future price action in forex markets.
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 why this effect takes place is quite simple. At the end of the year, many investors try to realize capital gains or losses to file their tax returns. Many corporations also try to adjust their balance sheets favorably at the end of the year.
Seasonality is not peculiar to the stock markets. In fact forex markets also tend to exhibit strong seasonal effects. Seasonality can be defined as a pattern that occurs at a particular period of the year.
The January Effect also affects forex markets due to the fact that 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 other seasonal patterns that have been studied in other parts of the year. Now, it does not mean that these seasonal effects take place exactly the same way every year.
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.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23211
Fundamental analysis uses study of economic forces whether they are financial or socio political that affect currency markets in the long run. Technical analysis also know as Charting studies the past price action charts to make predictions about the future price action in forex markets.
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 why this effect takes place is quite simple. At the end of the year, many investors try to realize capital gains or losses to file their tax returns. Many corporations also try to adjust their balance sheets favorably at the end of the year.
Seasonality is not peculiar to the stock markets. In fact forex markets also tend to exhibit strong seasonal effects. Seasonality can be defined as a pattern that occurs at a particular period of the year.
The January Effect also affects forex markets due to the fact that 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 other seasonal patterns that have been studied in other parts of the year. Now, it does not mean that these seasonal effects take place exactly the same way every year.
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.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23211
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.
posted by X - Men @ 2:02 AM
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