Wednesday, 20 February 2008

Fundamentals of Forex Trading


If you have been involved in Forex trading for any length of time, you will know that there are two main ways of analyzing markets and predicting trends: Technical Analysis and Fundamental Analysis. We have spent quite a lot of time looking at Technical Analysis and the different types of charts you can use, but so far we haven't looked much at Fundamental Analysis. However, this doesn't mean it isn't important.

You have probably also picked up that Forex traders tend to be split into two main schools of thought: those who swear by technical analysis and those who give priority to fundamental analysis. However, the two are so different that it would be very foolish to ignore either of them - they both have their very distinctive contribution to make to the way you study the markets.

As you will know by now, technical analysis is a way of using historical price data, via the charts, to predict the future price of a currency pair. In actual fact, technical analysis tracks the PAST, it does not in itself predict the future. You have to learn the skills and abilities to interpret the data in order to decide what the charts tell you about future activities.

Fundamental analysis consists of the study of all the information about a particular country that could possibly have any bearing on the movements of that country's currency. This will include economic and inflation indicators, political events such as election results, government policies, or even climatic events such as tornadoes, floods or earthquakes. These are a very effective way to forecast economic conditions, though they are not necessarily predictors of exact market prices.

In the next few posts we will look in more detail at the different kinds of Fundamental Analysis and how they should be used. A lot more detail can be found in the tutorial materials that Easy-Forex provide. And there's more information about Forex trading in general at http://www.bizwrite.co.uk/Forex/forexindex.html