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Fundamental and Technical Analysis

Before opening a position, Forex traders must first gather information about a currency pair so that they can determine the direction it is most likely to move towards. To do this, there are two main methods: fundamental analysis and technical analysis.

Fundamental analysis focuses on market forces that impact a currency. Mostly this comes in the form of news and events that have an effect, one way or another, on the value of currencies. Some of the most popular and most awaited information include reports on a country’s gross domestic product, announcements made by a central bank, and political events.

These three examples are influential to the Forex because they directly tell us about the economy where a currency is primarily used. By reading into issues regarding its supply and demand, you can tell what will happen to its value and make a trade to capitalize on your findings.

Meanwhile, technical analysis relies on finding historical data on the past movements of a currency pair and using it to make a prediction on the assumption that it will repeat certain patterns. Charts, indicators, and trends are factors most commonly discussed under this method which all have several subcategories or types.

You can choose to use support and resistance levels, trading range, moving averages, bollinger bands, and many more depending on the capabilities of your trading platform. Some brokers even allow you to program these indicators to execute trades automatically once a certain set of criteria is met.

Depending on the situation, one or both of these methods could be the most appropriate in making trades. Deciding which one to use is completely up to you.
 

Created by : Viceris
Published : 03 Jul 2015

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