The key to making money in the Forex is understanding what makes currency pairs move. Ultimately, it is investors who make currency pairs move as they buy and sell different currencies, but these investors buy and sell for a reason.
Either they see something happening fundamentally in the global economy that makes them believe a currency is going to get stronger or they see something happening fundamentally that makes them believe a currency is going to get weaker. In other words, they watch the fundamentals and make their decisions according to what they see.
Fundamentals make currency pairs move. If the economic fundamentals in the United States are improving, the U.S. dollar (USD) will most likely be getting stronger because Forex investors will be buying dollars.
This type of analysis is very often used by investors who prefer long-term trading. The forecast is made according to the economic and political situation at the current moment. Traders should analyze news daily, and pay attention to the events which can influence world economy. This news could be related to politics, new product releases by popular international companies, natural disasters etc. It is necessary to observe index dynamics by means of news. Thus, fundamental analysis covers almost everything including speculation.
It is clear that this kind of analysis totally depends on external and internal factors which influence the global economy. It is important to mention that it is necessary to notice not only obvious correlation but feel a more delicate relationship between world events and market behavior if you want to boost your trading results. For example, if an advanced economy strengthens or weakens, it is likely to influence both national currency of this country and currencies of its partner-countries.
In order to conduct fundamental analysis the following resources are used: economic calendars, news portals, reports of different state and non-state (reliable) institutions. Such organizations should specialize in this type of analysis. There are lots of news feeds in the Internet. Keep in mind that analytical resources will help you to stay updated. It is also important to follow the leading world analytics and take into consideration their opinion. Don’t forget to check important economic events from the economic calendar, and use indicators.
Below is the list of tools useful for fundamental analysis:
- Economic calendar;
- News feed with focus on analytics (for example, Dow Jones);
- Macroeconomic indicators;
- Holidays schedule;
- Interest rates.
What is technical analysis? This type of analysis is one more method to predetermine a price movement. The basis of technical analysis is supposition that the market has memory; therefore the further price movement dynamic can be predicted taking into consideration its consistent movement pattern. To make a forecast, traders plot charts showing a price dynamic in a certain time frame. Roughly speaking, technical analysis is a quote history, which helps to follow a possible trend move. Investors who prefer this type of analysis use technical indicators available at any trading platform. The indicators are different that is why a trader has an opportunity to create his own trading strategy suitable for a certain trading instrument based on data of any indicator.
There are different types of this analysis. For example, there is a candle analysis. This one is among the most popular types of technical analysis. The core of this analysis is simple - find in the quotes’ history standard reversal patterns and continuation of trend. The pattern names are unusual: head-and-shoulders, wedge, double top or triangle patterns etc. It’s also important to understand how these patterns work.
So, when you see a certain pattern on a chart you have an opportunity to consider a further price movement and possible breakout point.
Take into consideration, that there is special software, which will help you to conduct technical analysis on your own. These programs usually warn users with a signal. So, traders do not have to be in front of the computer all the time.
To sum it up: technical analysis is as difficult as fundamental. However, for newbies it is recommended to use technical analysis. A skilled investor can benefit from technical analysis using also automated trading systems, indicators, and expert advisors.
Source: Forex Broker Rating
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