The Forex trading market is a cash market that is open 24 hours a day, seven days a week. Most of the time, brokers are used to buy and sell the currencies of different countries. For example, you might buy Euros with U.S. Dollars or trade Canadian Dollars for Japanese Yen. Forex prices can change at any time in response to real-time events like political unrest, crude oil prices, inflation, import and export prices, or industrial production.
"Forex analysis" is usually used by people in the currency market to predict how prices will move. There are two types of Forex analysis: fundamental analysis and technical analysis. A fundamental analysis looks at economic and political factors to predict what will happen to a currency. A technical analysis uses reliable data from the past to predict how prices will move in the future. This article's goal is to talk about the basics of fundamental and technical analysis.
A fundamental analysis looks at economic and political factors, like the number of new homes built, the unemployment rate, and inflation, to try to predict what will happen to the value of a currency. Fundamental analysis tries to figure out why currencies move the way they do. Many Forex traders who use fundamental analysis base their trading plans on a number of important economic indicators from the U.S. government. Some of these are the Gross Domestic Product (GDP), Foreign Exchange Rates, Import and Export Prices, Industrial Production/Capacity Utilization, the Composite Index of Leading Indicators, Consumer Credit, the Consumer Price Index (CPI), Retail Sales, Housing Starts, the Employment Cost Index, and Consumer Confidence.
All of these economic indicators from the Federal government have a big impact on both the stock market and Forex. Some of these indicators come out every week, while others come out every month or every three months. The Federal Reserve Board, the U.S. Bureau of Labor Statistics, the U.S. Department of Agriculture, the U.S. Bureau of Economic Analysis (BEA), and the U.S. Census Bureau are some of the places where they get their information.
Other economic indicators must also be taken into account by those who trade in forex. The biggest economies in the world, like the UK, Japan, France, and Germany, also put out their own economic indicators that affect the Forex market. For example, housing prices, gross domestic product (GDP), the number of cars per 1,000 people, the number of telephones per 1,000 people, and the number of people working in agriculture are all leading economic indicators in the United Kingdom.
A technical analysis looks at the past to predict how a currency will move in the future. The technical analyst thinks that history always comes back to repeat itself. Technical analysis doesn't look at why currencies move the way they do (for example, interest rates or inflation). Instead, it thinks that the way currencies have moved in the past is a clear sign of how they will move in the future.
This is what Investopedia says: "A fundamental analyst would go to each store in a shopping mall, look at the products for sale, and then decide whether or not to buy them. A technical analyst, on the other hand, would sit on a bench in the mall and watch people go into shops. The person would make a choice based on the patterns or activities of the people who go into each store, not on the value of the things in the store."
During the back-to-school shopping season, for example, the technical analyst might notice that more people are going into clothing stores than flower shops. Also, the technical analyst might notice that on Valentine's Day, more men go into flower shops than into clothing stores.
Here's another illustration. Oil prices go up a lot, which makes inflation happen. Inflation is kept in check when interest rates go up. In the past, when interest rates were higher, people had less money to spend, which slowed down economic growth. In the past, higher interest rates have also led to more foreign investment in the currency, which makes the currency stronger.
Most of the time, the technical analyst uses charts to predict how the price of a currency will change. Line charts, vertical bar charts, and candlestick charts are the three most common types of charts.
Some Forex traders use fundamental analysis, while others use technical analysis. But many successful Forex traders use both strategies at the same time. But the most important thing to remember is that no one strategy or set of strategies is 100% sure.
