Forex Trading Techniques

Forex: Forex Traders

Understanding Fundamental and Technical Analysis

"Fundamental trading is a very effective way to forecast economic conditions, but not necessarily exact market prices. Don't fill your mind with too much information, the best way to trade is the simple way. However, it is very important to understand fundamental and technical analysis in order to use them for your Forex trading."

Fundamental analysis forecasts future price movements based on economic, political, environmental and other relevant factors, like seasonal cycles, supply and demand, government policy. Fundamental analysis is a macro assessment of where a currency should be traded based on the movement of the currency's price itself. The economic conditions of the country, monetary policy and other fundamental elements play an important role on this assessment. Many profitable forex trades are made moments prior, or shortly after, major economic announcements.

Fundamental analysis considers the intrinsic value of an investment when making a decision as to its future activity. There are some who feel that this is an excellent method of making decisions in the Stock market as a lot of data can be gathered and studied concerning the value of a Company.

International Trade
If there is a trade deficit (more widgets being imports than exported) is used usually viewed as a negative factor. Which would imply that more money is going out of the country to buy foreign goods and less entering the country. This could have a negative effect on the countries currency. Usually trade imbalances are factored into the market consideration. If a country operators with a trade deficit there should not be an affect on the currency price.

Factors to watch CPI
Cost of living PPI
Cost of producing goods GDP
Measures the value of all goods produced in a country M2
Money Supply, which measures the total amount of currency of a country.

These are not all of the indicators to watch, but a good starting point. There are 28 major indicators for the US market. They can all have an effect on the financial markets and should be analyzed when developing your forex strategies.

A fundamental analysis will give you an overview and broad picture of economic conditions and currency movements. A majority of Forex traders use a technical and a fundamental analysis; in order to position their entrance and exit points. Then they confirm the decision with their data from their fundamental analysis.