Seasonality in Forex Markets
Most forex traders analyze and predict the future direction of currencies using fundamental or technical analysis. The craftier among them use the combination of both to predict direction of forex markets.
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 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 other seasonal patterns in currency pairs. However, it does not mean that you should believe in these effects blindly. Just keep them in your mind when trading.
Seasonality in currency pairs only means that there is a strong probability that during a particular time of the year, the chances of a particular currency pair going up or down are high.
In certain years, the effect may be pronounced. Just remember that many economic forces play a role in effecting the currencies so in other years, the seasonal effects may not be so pronounced. As a forex trader, you only need to understand these seasonal effects while trading during that time of the year. - 23204
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 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 other seasonal patterns in currency pairs. However, it does not mean that you should believe in these effects blindly. Just keep them in your mind when trading.
Seasonality in currency pairs only means that there is a strong probability that during a particular time of the year, the chances of a particular currency pair going up or down are high.
In certain years, the effect may be pronounced. Just remember that many economic forces play a role in effecting the currencies so in other years, the seasonal effects may not be so pronounced. As a forex trader, you only need to understand these seasonal effects while trading during that time of the year. - 23204
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 @ 2:10 AM
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