Seasonal Patterns in Forex Markets
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 depends on the study of underlying economic factors that affect currency markets. Technical analysis is based on the premise that past price action can be used to make predictions about the future price action in forex markets.
If you have been trading stocks, you must be familiar with the term: The January Effect. It has been observed over a long period of time that stocks tend to perform very well between the last week of December and the first week of January.
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.
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 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 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 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. - 23223
Fundamental analysis depends on the study of underlying economic factors that affect currency markets. Technical analysis is based on the premise that past price action can be used to make predictions about the future price action in forex markets.
If you have been trading stocks, you must be familiar with the term: The January Effect. It has been observed over a long period of time that stocks tend to perform very well between the last week of December and the first week of January.
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.
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 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 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 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. - 23223
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading; stocks and forex. Read about Trend Forex System. Best Forex Signal Service.
posted by X - Men @ 2:32 AM
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