You need to know various forex methods to do forex trading. As a Forex trader you might wonder which strategy fits you more, technical analysis or fundamental analysis, focusing on one or maybe combine them both. Here is a short introduction of both:
Technical analysis, is about using Forex market data like pricing and volume, together with technical indicators like moving averages, Elliott waves and Fibonacci, to choose trading positions and forecasting future price movements. It is based on mathematics and statistics, graph examination, analyzing low and high currency pricing, understanding of opening and closing price and trade volume. There are three basic assumptions in technical analysis:
- Market fluctuations embodies everything
- History repeats itself
- Prices move in a cycle
Technical analysis is not about trying to explain the behavior of prices and market data based on the actual reality, the one that is outside the Forex market. It tries to predict the future price based on the past (near and far).
Fundamental analysis, unlike technical analysis, doesn’t give to much significance to how a currency used to perform in the past, instead it is based on news and economic facts, consumer research, public economic data, interest rates updates, together with political news, and technological advancements. Fundamental analysis examines daily life conditions, economic and political agenda, where the currency is in use. Generally speaking, economies are based on the following variables:
- Central bank interest rates
- Unemployment rates
- Tax policy
- Inflation rates
- Political stability
As an example, one of the most important indicators when using fundamental analysis is the consumer price index (CPI). When CPI is going down, it could be that the currency is gaining strength. A Forex trader that is using fundamental analysis learns how external indicators might influence the demand for a currency. Such analysis assumes that the market is unexpected without acquiring immediate information, and that currencies are not consistent.
Based on the two common denominators of a. deciphering indicators and b. assimilating chart patterns- basic strategies equip and prepare you for future Forex trading and its challenges. It is like learning to walk before you leap-therefore are mandatory to be learnt in order to successfully implement a well-rounded decision-a rare blend for consistent profits and frequent transactions. For most seasoned traders, Basic Forex strategies are part of their life-long learning, which improves its fruition over a due course of time. Every transaction and dollar earned is part of your learning curve and benefits your educational cycle in short as well as long term equilibrium.