|
The key to finding trading opportunities in the forex markets is being able to analyze them. The most successful traders are those who have mastered analysis since it enables them to find areas on the price charts where they can open and close positions and take profits. There are two types of analysis that Forex traders use.
Fundamental analysis: - This is the most basic way of analyzing the markets to find trading opportunities. Fundamental analysis involves looking at the economic and political news coming out of a country that could affect the value of its currency.
For example, let’s say a country is set to release its Gross Domestic Product (GDP) figures, which reflect the state of its economy. If the data shows that GDP has increased, it is an indicator that the economy is healthy. In this case, forex traders buy the country’s currency, causing its value increase. On the other hand, if GDP falls, it is a sign that the economy is declining and traders may sell its currency, causing its value to fall.
Of course, the above is an oversimplification and it is more complicated than that. But this is a basic overview of how fundamental analysis works. Traders who use this type of analysis use economic calendars that enumerate when the major economic news coming out of countries whose currencies are among the major ones traded as their basic tool.
Technical analysis: - The basic principle behind technical analysis is that you can predict the movement of price data by looking for particular patterns; technical analysis relies on the price charts. For example, one of the most common patterns is resistance and support levels. When prices reach a support level, this means that they will not go below this level; resistance levels, on the other hand, are the opposite, meaning that prices will not go above these levels. Once you have identified these levels on the charts, you can trade in the direction of the price movement.
While there are traders who specialize in one or the other of these analysis types, the best traders use both since they complement each other. Fundamental analysis tells the trader when a major price movement is due and technical analysis tells him exactly where to open and close trades.
|
