Types of trading
Now you’ve learned some history about the Forex, how it works, what affects
the prices, etc.
We know what you’re thinking…BORING!
SHOW ME HOW TO MAKE MONEY!
Lets begin your journey as a Forex trader..!
Two Types of Trading
There are 2 basic types of analysis you can take when approaching the forex:
1.
Fundamental analysis
2.
Technical analysis.
There has always been a constant debate as to which analysis is better, but
to tell you the truth, you need to know a little bit of both. So let’s break
each one down and then come back and put them together.
Fundamental Analysis
Fundamental analysis is a way of looking at the market through economic,
social and political forces that affect supply and demand. In other words,
you look at whose economy is doing well, and whose economy is not. The idea
behind this type of analysis is that if a country’s economy is doing well,
their currency will also be doing well. This is because the better a
country’s economy, the more trust other countries have in that currency.
For example, the U.S. dollar has been gaining strength because the U.S.
economy is gaining strength. As the economy gets better, interest rates get
higher to control inflation and as a result, the value of the dollar
continues to increase. In a nutshell, that is basically what fundamental
analysis is.
Later on in the course you will learn which specific news events drive
currency prices the most. For now, just know that the fundamental analysis
of the Forex is a way of analyzing a currency through the strength of that
country’s economy.
Technical Analysis
Technical analysis is the study of price movement. In one word, technical
analysis = charts. The idea is that a person can look at historical price
movements, and, based on the price action, can determine at some level where
the price will go. By looking at charts, you can identify trends and
patterns which can help you find good trading opportunities.
The most IMPORTANT thing you will ever learn in technical analysis is the
trend! Many, many, many people have a saying that goes, “The trend is your
friend”. The reason for this is that you are much more likely to make money
when you can find a trend and trade in the same direction. Technical
analysis can help you identify these trends in its earliest stages and
therefore provide you with very profitable trading opportunities.
So which type of analysis is better?
Good
question! Throughout your journey as an aspiring Forex trader you will find
strong advocates for both fundamental and technical trading. You will have
those who argue that it is the
fundamentals alone that drive the market and that any
patterns found on a chart are simply coincidence. On the other hand, there
will be those who argue that it is the
technicals that traders
pay attention to and because traders pay attention to it, common market
patterns can be found to help predict future price movements.
Do not be fooled by these one sided extremists! One is not better than the
other...
In order to become a true Forex master you will need to know how to
effectively use both
types of analysis. Let us give you an example of how focusing on only one
type of analysis can turn into a disaster.
The Forex is like a big flowing ball of energy, and within that ball is a
balance between fundamental and technical factors that play a part in
determining where the market will go.
In the Forex, when deciding which type of analysis to use don't rely on just
one. Instead, you must learn to balance the use of both of them, because it
is only then that you can really get the most out of your trading.
|
