How Seasonal Patterns Effect 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.
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.
There is nothing extraordinary about the January Effect. The effect takes place due to the fact that many investors try to recognize capital gains or losses at the end of the year due to tax reasons. Many corporations also try to window dress their balance sheets 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, the January Effect is more pronounced in certain currency pairs as compared to others. For example, dollar shows pronounced January Effect against some currencies but not other. The Summer Effect also takes place when dollar shows a summer seasonality when it tends to rise in USD/JPY and USD/CAD in the beginning of July and give back its gains by 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.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23229
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.
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.
There is nothing extraordinary about the January Effect. The effect takes place due to the fact that many investors try to recognize capital gains or losses at the end of the year due to tax reasons. Many corporations also try to window dress their balance sheets 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, the January Effect is more pronounced in certain currency pairs as compared to others. For example, dollar shows pronounced January Effect against some currencies but not other. The Summer Effect also takes place when dollar shows a summer seasonality when it tends to rise in USD/JPY and USD/CAD in the beginning of July and give back its gains by 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.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23229
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 @ 2:42 AM
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